GRIPs are our range of investment solutions designed for clients who are looking to take a sustainable, regular income from their retirement savings. Investing across a well-diversified mix of assets, they aim to deliver real returns and to respond better to market downturns whilst also capturing market upside. It’s now been six years since the GRIPs were launched which provides us with a reasonable time frame to look back at how they’ve performed.
The real challenge for customers in drawdown is finding the right mix of assets which delivers a sustainable income. One of the key characteristics to look for is how a solution performs during a market downturn. We’ve defined a market downturn as a fall in the FTSE All Share of more than 5% and our analysis shows this has occurred twice since August 2012. On both occasions the GRIPs responded better through the downturn than our solutions designed for accumulation, the Governed Portfolios.
The first was from May to September 2015 when the All Share fell 11%. For those who remember, Greece had a stand-off with the rest of Europe over their demands for more austerity and China devalued its currency and sent risk assets into a tail spin. During this four month period the GRIPS fell on average 4.4% compared to our accumulation portfolios which fell 6.6% on average.
The second period was more recently when the All Share fell 7% from December 2017 to March 2018. This was due to fears over US inflation following an uptick in earnings. With stock market valuations already stretched this raised further concerns about rising interest rate and markets became twitchy. During this time the GRIPS fell on average 2.8% compared to our accumulation portfolios which fell 3.7% on average.
|31/05/2015 to 30/09//2015||31/12/2017 to 31/03/2018|
|Average Return GRIPs||-4.39||-2.79|
|ABI UK - Mixed Investment 20% - 60% Shares-Pen||-6.43||-3.34|
|Average Return GPs||-6.59||-3.34|
|FTSE All-Share TR||-11.12||-6.87|
Source: Lipper. Past performance is not a guide to the future. Prices can fall as well as rise meaning you may not get back the full amount of capital originally invested. Investment returns may fluctuate and are not guaranteed.
The different asset mix of the GRIPs means they will perform differently to a portfolio designed for accumulation. There’s a higher weighting to defensive assets such as fixed interest. For example, we adopt an equal weighting across gilts, index linked and corporate bonds to provide stronger diversification and some additional resilience during stress periods. We also include a weighting to absolute return and cash which provides enhanced capital preservation and liquidity characteristics but with higher risk/return characteristics than pure cash. Our Commodity exposure gives them some resilience to unexpected inflation shocks. Crucially these weightings are not fixed, which allows us to take a view on where markets might be heading and adapt our weightings accordingly. Over the year to the end of June, the tactical asset allocation overlay has added on average 0.47% to returns.
Longer term the GRIPs have delivered broadly similar returns to the Governed Portfolios, but the key point is that how they perform during market downturns means they can be a more appropriate solution for those customers in drawdown. It’s not just about taking the right amount of risk - it’s also about taking the right kind of risk. We’re in one of the longest expansions on record and whilst there are signs that global growth has peaked it still continues at a solid pace. Whilst we don’t expect a sharp drop off in markets anytime soon, the downside risks have risen and volatility is likely to track higher over the next year.
It could be just the time to take another look at the GRIPs as a solution for your centralised retirement proposition.
For more information speak to your usual Royal London contact, or visit http://adviser.royallondon.com/pensions/investment/our-investment-options/grips/
Head of Investment Solutions
Lorna is Head of the Investment Solutions team at RLI and has responsibility for the development and promotion of Royal London's investment proposition including the award winning Governed Range. She has worked in pensions and investment since 1990 and holds the IMC qualification and a Masters in Investment Science.