Investment Governance Meeting Summary – 4 December 2018

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 ahead of this meeting was on 20th September 2018.
  • We reduced our overweight exposure to equities throughout the quarter, bringing exposure the closest to benchmark it has been since 2012.
  • We also reduced our exposure to commodities moving to an underweight position relative to the benchmark
  • Proceeds were moved into government bonds, short dated high yield debt, and cash
  • Looking forward, we remain buyers of equities on weakness, as we expect the global expansion to continue into 2019

Fund review

  • 16 RLAM funds on watch
  • 2 Funds under review
  • 10 Matrix funds on watch

Governed Portfolios

Number of Governed Portfolios outperforming benchmark 1 year 9/9
3 years 8/9
5 years 7/9
Number of Governed Portfolios within target volatility ranges 8/9
  • All of the Governed Portfolios are outperforming over five years.
  • Long term returns remain very strong.

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 short-term risk measure 5/5
Number of GRIPS within long-term risk measure 5/5

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

*For more information on the risk metrics please see leaflet Managing Risk in GRIPs.

Tactical strategy

Equities down arrow    
Property   no change  
Commodities     down arrow
High Yield up arrow    
Gilts     up arrow
Index Linked   no change   
Corporate Bonds no change    
Absolute Return Strategies (including cash)     up arrow

Source: Tactical change – 20 September 2018, Royal London

  • Given the de-risking of portfolios that took place during the summer, TAA effects were relatively muted over the quarter. There were small positive contributions from overweighting Equities and underweighting Cash whilst an overweight stance in Commodities marginally detracted. Fixed Income and Property allocation effects were broadly neutral. Regional positioning within Equities was positive over the quarter with performance benefiting from overweighting overseas markets at the expense of underperforming UK equities. Across the overseas regions, overweight allocations to the US and Japan at the expense of continental Europe and Emerging Markets, all contributed positively to relative performance. Within Fixed Income, the overweight exposure to investment grade corporate debt offset a small positive contribution from underweighting conventional and index-linked UK government bonds which underperformed as Gilt yields rose over the period.

The following funds were subject to action at the latest IAC meeting (4th December):

Stewart Investors Emerging Market Leaders Fund

  • The fund has triggered red for six consecutive quarters and is underperforming over one, three and five years. Morningstar have upgraded the fund from bronze to silver based on their increased confidence in the new managers adherence to the house investment style. The fund is currently soft-closed and has underperformed by 4% over the quarter however is outperforming to end November. The fund also contains 7.8% exposure to non-GEM listed companies in addition to a cash weighting of 13%. Taking the above into consideration, the IAC were comfortable to maintain the Stewart Investors Emerging Market Leaders Fund as the Emerging Market Specialist category choice within the Matrix. We will continue to closely monitor the performance of this fund.

Artemis UK Special Situations Fund

  • The fund has triggered red for ten consecutive quarters and is underperforming over one, three and five years. Performance over the quarter has been poor, largely driven by management’s value orientated stock selection. Morningstar retain a bronze Analyst Rating for this fund. The investment process of the fund focuses on identifying companies that are in recovery, need refinancing or are suffering from investor indifference. Returns on such a specialist fund can often differ significantly from those of the underlying benchmark. We maintain a belief in the robustness of the investment process and management’s ability to add value over the longer term. As such IAC are happy to hold the Artemis UK Special Situations Fund continuing to monitor performance.

Rathbones Global Alpha

  • The fund finished behind of the benchmark over Q3 2018, is ahead over 1 year and remains marginally behind over 3 and 5 years to end September 2018. RLI have a meeting with Rathbones on 11 January to discuss the future strategy of the fund as well as tracking error measures. The IAC expressed concern about the mixed messages from Rathbone in terms of appetite to change risk budgets, and asked that this be raised at the meeting.

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