Investment Governance Meeting Summary - 5 March 2020

The Investment Advisory Committee (IAC) meet every quarter to review our Governed Range and funds.
Support for you

For more in-depth material you can access the following information:

Strategic Asset Allocation:

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

Tactical Asset Allocation:

 Last change made on 5th December 2019.

Global equities rose again in November as investors focused on the accommodative monetary policies of central banks and early signs that global growth is stabilising. Given muted inflation, interest rate cuts in the US and other countries are positive for risk assets as the global economy picks up. However, stock markets are always vulnerable to political setbacks, such as US-China trade deal delays or Middle Eastern tensions.

While remaining constructive on the outlook for equities, we have taken some profits and reduced our overweight position. We have also reduced our allocation to commodities, building up cash to buy equities on weakness.

Fund Review:

2 RLAM funds on watch

3 Funds Under Review

6 Matrix funds on watch (due to underperformance)

Governed Portfolios

Number of Governed Portfolios outperforming benchmark 1 year 9/9
3 years 9/9
Since launch  8/9
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 8/9 portfolios outperforming since launch by an average of 5.10%.

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:

Image Source: Royal London Viewpoint

 Global equities rose again in November as investors focused on the accommodative monetary policies of central banks and early signs that global growth is stabilising. Given muted inflation, interest rate cuts in the US and other countries are positive for risk assets as the global economy picks up. However, stock markets are always vulnerable to political setbacks, such as US-China trade deal delays or Middle Eastern tensions. While remaining constructive on the outlook for equities, we have taken some profits and reduced our overweight position. We have also reduced our allocation to commodities, building up cash to buy equities on weakness.

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

  • Invesco Japan

An update was provided on the proposed replacement from T.Rowe and their ESG integration process as well as information on share class prices. The IAC were satisfied with the commitment from T.Rowe to expand their ESG team and the information provided on ESG integration into the investment process. There remained some concern around their voting record and it was agreed that their policy of engagement rather than disinvestment (with companies with a poor ESG record) needed to be monitored to ensure it is effective in practice.

 T.Rowe also confirmed that if a clean share class were to be made available, RLI could switch to this at no additional cost.

 In light of this information, the IAC gave their support for the fund change while reiterating that ESG issues need to be a priority in Matrix fund selection going forward.

 Note IAC emphasised the importance of considering ESG and other non-performance factors when shortlisting and replacing Matrix funds.

  • Schroder Tokyo

 Schroder Tokyo sits in the Japan Core Plus category of the Matrix. The proposal recommended that the mandate for this be moved to the Baillie Gifford Japanese Income Growth fund.

 This fund has a lower charge than the incumbent, has a strong long-term performance record and scored well on the CQS* quant matrix. In addition, it was felt that Baillie Gifford demonstrated a strong investment process across Japanese equities and IAC liked that their team has been working together for a number of years.

 From an ESG perspective, Baillie Gifford demonstrated a clearly defined process with analysis integrated fully into the decision-making process and ESG analysts sitting on each stock selection team.

 With this in mind, the committee were happy to support Baillie Gifford Japanese Income Growth as the replacement for Schroder Tokyo subject to no red flags from the due diligence questionnaire.

 *Consistency Quantitative Score – propriety quantitative analysis provided by RLAM which identifies funds which have demonstrated a high consistency of outperformance.

  • Invesco UK Growth

 Due to the period of underperformance, a Morningstar downgrade from ‘Silver’ to ‘Neutral’, and the 3Q rating of 4, RLI are currently looking for a replacement for this fund.

 Following December’s IAC, RLI had identified potential replacements through internal analysis and Morningstar recommendations however, after fund manager meetings, it was agreed none were suitable. RLI will continue with their research and arrange an ad-hoc IAC meeting once a replacement is identified.

 IAC noted that increased engagement in respect to monitoring Invesco redemptions would be advisable.

This website is intended for financial advisers only and shouldn't be relied upon by any other person. If you are not an adviser please visit royallondon.com.

The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.