FOR ADVISERS ONLY
Investment Governance Meeting Summary – 2 September 2020
Strategic Asset Allocation:
For more in-depth material you can access the following information:
No SAA changes were recommended for the Governed Portfolios or GRIPs.
Tactical Asset Allocation:
Last change made on 11th June 2020.
Risk assets recovered further in May. Equity investors continued to look through the short-term effects of the lockdown on companies, taking reassurance from the unprecedented financial support packages from governments and central banks. Leading financial data suggested that the global economy will rebound quickly, although this will depend on Covid-19 remaining under control. We’ve added to equities, going further overweight, and trimmed our underweight in commodities to reflect this optimism. These changes are mainly funded from cash. We remain overweight short duration global high yield credit and commercial property exposure has drifted further underweight.
Fund review:
- 5 RLAM funds on watch
- 1 Fund Under Review
- 7 Matrix funds on watch (due to underperformance)
Governed Portfolios
| Number of Governed Portfolios outperforming benchmark | 1 year | 1/9 |
|---|---|---|
| 3 years | 4/9 | |
| Since launch | 5/9 | |
| Number of Governed Portfolios within target volatility ranges | 9/9 | |
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All the Governed Portfolios were within their target volatility ranges.
Governed Retirement Income Portfolios
| Number of GRIPs outperforming benchmark | 1 year | 0/5 |
|---|---|---|
| 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 | |
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All GRIPs remain within their target ranges for the income risk metric. Sustainability scores for the lower risk GRIPs have remained largely unchanged however for the higher risk portfolios there has been a slight decline in sustainability.
- For the fund risk metrics GRIPs 3,4 and 5 have moved above the 10% tolerance of target and are now flagging red. Increases in the Max 1-year loss figures are being driven by increases in short term volatility for risk assets within the model. UK equity 1-year volatility has increased from 15.6% to 26.8%, while Global Equity is 22.4% up from 16.1% last quarter. Please see the IAC minutes for the committee’s comments on the GRIPs risk metrics.
All portfolios remain within their target ranges for the income risk metric. Sustainability scores have marginally declined from last quarter as annuity rates remain at historically low levels and the expected future returns across most asset classes have declined.
The fund risk metrics for all GRIPs are now back within tolerance following the red flags for GRIPs 3,4 and 5 in the first quarter of 2020. This was driven by increases in short term volatility for risk assets within the model. UK equity 1 year volatility has decreased from 26.8% to 19.6%, while Global Equity is 18.4% down from 22.4% last quarter. Please see the IAC minutes for the committee’s comments on the GRIPs risk metrics.
Tactical Strategy:
| Overweight | Neutral | Underweight | |
|---|---|---|---|
| Equities |  |
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| Property |  |
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| Commodities | |
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| High Yield | |
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| Gilts | |
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| Index Linked | |
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| Corporate Bonds | |
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| Absolute Return Strategies (including cash) |  |
Risk assets recovered further in May. Equity investors continued to look through the short-term effects of the lockdown on companies, taking reassurance from the unprecedented financial support packages from governments and central banks. Leading financial data suggested that the global economy will rebound quickly, although this will depend on Covid-19 remaining under control. We’ve added to equities, going further overweight, and trimmed our underweight in commodities to reflect this optimism. These changes are mainly funded from cash. We remain overweight short duration global high yield credit and commercial property exposure has drifted further underweight.
The following funds were subject to action at the latest IAC meeting:
Invesco Global Equity
The fund has underperformed benchmark over 3 and 5 years however a new fund manager was appointed in early-2020. There has been a large amount of turnover in the fund so far; the most notable being an increased allocation to US and Tech in particular which has benefited shorter-term performance, however the fund currently remains on watch.