Investment Governance Meeting Summary - 3 September 2019

The Investment Advisory Committee (IAC) meet every quarter to review our Governed Range and funds.
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Strategic asset allocation

  • No SAA changes were recommended for the Governed Portfolios or GRIPs.

Tactical asset allocation 

  • Last change made on 13th June 2019.

  • Global stock markets retrenched in May as President Trump reignited trade wars with China, imposing further tariffs on specific imports. With China retaliating, hopes of a US-China trade deal in the short-term was reduced. Economic data deteriorated slightly and antitrust scrutiny weighed on technology stocks. Trade tensions continued to concern Central banks who were closer to cutting interest rates in the hopes of boosting investor sentiment.

  • In light of this we moved overweight UK government bonds, given weaker inflation expectations and retain a moderate overweight in equities, given positive global growth persisting. This was funded through a reduction of cash exposure and commodities which are sensitive to slowing global trade. 

Fund review

  • 9 RLAM funds on watch

  • 3 Funds Under Review

  • 14 Matrix funds on watch (due to underperformance)

Matrix Replacement Approved

The Artemis UK Special Situations pension fund has triggered red for thirteen consecutive quarters and is underperforming over 1, 3 and 5 years. Morningstar have downgraded their Analyst Rating from Bronze to Neutral for the fund as their level of conviction relative to other UK special situations funds is lower than it has been in the past. For these reasons, the committee gave their approval to replace this fund with Baillie Gifford UK Equity Alpha. Members, Advisers and Employers invested in this fund will be advised of the change shortly with the switch taking place in Q1 2020.

Governed Portfolios

Number of Governed Portfolios outperforming benchmark 1 year 6/9
3 years 9/9
Since launch  7/9
Number of Governed Portfolios within target volatility ranges 9/9
  • All 9 portfolios show positive asset allocation over a 3-year time frame.
  • Long term returns remain positive with 7/9 portfolios outperforming since launch by an average of 2.44%.


Governed Retirement Income Portfolios

Number of GRIPs outperforming benchmark 1 year 5/5
3 years 5/5
Since launch 5/5
Number of GRIPs within target range – Income Risk Metric 5/5
Number of GRIPs within target range – Fund Risk Metric 5/5

•             All of the GRIPs were within tolerances for their income and fund value risk metrics

Tactical Strategy:

Source: Tactical change - 13 June 2019, Royal London

In June, a mix of trade tensions and deteriorating economic data nudged Central banks closer to cutting interest rates to boost investor sentiment. We moved overweight in UK government bonds, given weaker inflation expectations, and retain a moderate overweight in equities, given positive global growth persisting; while reducing exposure to cash and commodities which are sensitive to slowing global trade. The overall position as at end June, was overweight Equities, High Yield, Government and Corporate Bonds; underweight Absolute Return Strategies (inc. cash) and Commodities. Neutral positions were maintained across Property and Index Linked Bonds.

The following funds were subject to action at the latest IAC meeting:  

  • Rathbone Global Alpha
    The fund finished ahead of benchmark over Q1 2019, however was still behind benchmark over 1 and 5 years to the end of June 2019.The lag over 1 year is the result of a difficult Q4 2018. This had also caused underperformance for the 1 year to end 2018. YTD to the end of June, the fund was 2% ahead, helped in part by the recovery of growth assets, in particular Japan. The overweight to the US continued to be a positive, with selection in UK, US, Japan and Europe all helping. 

    Over the longer term, the Committee were already aware of the drag on performance from the fallout from the UK referendum, and the difficulties in reducing our small and midcap exposures in the UK within a fund of funds structure. This continues to affect the 5 year number. It was noted by IAC that Rathbones had moved away from a multi-manager strategy two years ago for its own funds and that lead David Coombs had recently been quoted in the press regarding the challenges ahead for multi-Manager funds.
  • Invesco Japan
    The fund is underperforming against benchmark over 1, 3 and 5 years. Morningstar have reduced the Analyst rating on the fund from Bronze to Neutral and consider other teams in the Japan equity space to be better resourced. This combined with the long-term underperformance will result in a review of potential replacement funds. 
  • Stewart Investors Global Emerging Market Leaders
    The fund is underperforming over 1, 3 and 5 years and remains soft closed. It no longer sits in the Emerging Markets IA sector due to a 20% investment in Developed Markets and for these reasons we will bring a potential replacement to the next IAC. Morningstar have maintained a silver Analyst Rating for this fund. 

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