NEST quarterly investment report

Transcription

1 NEST quarterly investment report July to September 2015 Fund facts Total size of assets under management 0.56bn Annual management charge/total expense ratio 0.3% Contribution charge 1.8% Pricing basis Single price NEST s fund managers For more information visit nestpensions.org.uk * Please note that F&C funds are distributed by BMO Global Commentary Mark Fawcett Chief investment officer Equity markets fell due to concern about growth in China. This was exacerbated by the Chinese currency adjustment. Part of the issue is that there are three exchange rates in China, so this was a technical revaluation. China remains keen to make the Yuan a reserve currency. The biggest concern in the quarter was the slow growth in world trade at sub 2 per cent. This reflects weaker growth in China, this plus weakening commodity prices, making it tough for emerging economies to perform, as did weakening commodity prices. The Sterling price return on the MSCI Emerging Market index was per cent for the period. Government bonds rallied slightly, reflecting the flight to quality, and corporate bond spreads continue to edge upwards. There was continued speculation around the US Federal Reserve Bank raising interest rates. A small rise in rates would have negligible impact on the economy but would signal to investors that the Fed is in control, so would likely boost sentiment. If it keeps rates low for too long this could lead to poor allocation of capital. Listed property held firm in the face of volatile equity markets. The European economy is gradually recovering. We expect quantitative easing to continue which is likely to help growth but might cause weakness in the Euro. The Volkswagen scandal served to illustrate the importance of proper governance. Its share price has sunk since the company admitted installing software that cheated emissions tests. VW has never been known as an exemplar of excellent governance, not least its unusual voting requirements which could inhibit institutional shareholders from voting at AGMs. Investing responsibly highlights We met with the Banking Standards Board to share our findings on culture and conduct in the UK Banking sector. It now wishes to use these as part of its evidence base on which to form future policy. We supported a letter by the Institutional Investors Group on Climate Change to a number of energy companies requesting disclosure on their positions on climate and energy policy, lobbying activities, and processes for managing any inconsistencies between their own policy positions and their trade associations. At Ryanair s AGM in September, UBS voted against the remuneration report due to a lack of transparency. It also declined to support the re-appointment of the Chair of the Remuneration and Audit committee who is not considered sufficiently independent. Comparative risk This chart broadly compares different NEST funds in terms of risk, based on guidance given by the European Securities and Markets Authority (ESMA). The chart uses categories of 1 (low risk) to 7 (high risk) corresponding to different ranges of volatility. ESMA s guidance suggests volatility should be calculated on five-year historic. As NEST funds don t yet have five years of the above chart is based on forwardlooking long-term volatility estimates. As our funds gain the necessary history the chart will be updated to reflect historic volatility in accordance with ESMA s guidelines. Investment beliefs Annualised volatility 1 = 0-0.5% 2 = 0.5-2% 3 = 2-5% 4 = 5-10% 5 = 10-15% 6 = 15-25% 7 = >25% There is no generally agreed objective framework for investors that adequately describes how to view capital markets, or how to apply these insights for investment purposes. Investment beliefs are established by investors to provide them with focus and assist effective decision making in a complex environment. The Trustee of NEST has set out its investment beliefs to provide a transparent framework for consistent decision making. Our beliefs, which are reviewed on a regular basis, are: 1. Understanding scheme member characteristics, circumstances and attitudes is essential to developing and maintaining an appropriate investment strategy. 2. As long-term investors, incorporating environmental, social and governance (ESG) factors is integral to the investment management process. 3. Taking investment risk is usually rewarded in the long term. 4. Diversification is the key tool for managing risk. 5. Risk-based asset allocation is the biggest driver of long-term. 6. Taking account of asset values and asset prices, economic conditions and long-term market developments enhances long-term and informs strategic decisions. 7. Indexed management, where available, is often more efficient than active management. 8. Good governance, including an appropriately resourced in-house investment function, is in the best interests of NEST s members. Following the discovery of an error in the way NEST labelled investment returns, this factsheet was updated February 2019 to correctly record that all investment data is gross i.e. the returns have not had the 0.3 per cent annual management charge deducted.

2 Page 2 NEST quarterly investment report July to September 2015 NEST 2040 Retirement Fund For the of the 47 single year NEST Retirement Date Funds please refer to the last page of this report 1 2.5% 2.8% 4.3% 7.4% 4.8% management charge of 0.3%* Benchmark: CPI + 3% Growth phase target investment returns equivalent to inflation plus 3 per cent and cover all scheme charges target a long-term volatility average of 11 per cent aim for steady growth in real terms over the life of the fund maximise retirement incomes by taking sufficient investment risk at appropriate times while reducing the likelihood of extreme investment shocks The Growth phase is the engine room of the NEST Retirement Date Funds and where we concentrate on growing the pot quickly. While we need to take substantial investment risk to generate sufficient investment return, our research suggests that members are intimidated by the idea of extreme investment shocks. For this reason we also manage the volatility of the portfolio throughout the Growth phase. The Growth phase will typically continue until 10 years before the expected retirement date at which time the fund will move into the Consolidation phase. We use the Consumer Price Index measure for inflation. Growth phase 6.1% 3.7% Developed market equities 5.2% 5.3% Volatility Value at risk September % 12.9% 11.9% 46.7% UK index-linked gilts 21.0% Emerging market equities Lifecycle of the NEST 2040 Retirement Fund This NEST Retirement Date Fund is in the Growth phase. Over its lifetime it will experience both the Growth phase and the Consolidation phase until it matures in The NEST lifecycle ensures that our members are exposed to the right amount of risk at different stages in their savings career. Our estimate of this risk path is shown as the middle line on the lifecycle chart. We dynamically manage the actual amount of risk taken depending on the investment environment. The upper and lower limits of the risk budget are shown above and below the estimated risk path. The actual amount of risk taken will vary between these limits. The marker shows the fund s current place in its lifecycle, and its risk level relative to the projected risk budget range.

3 Page 3 NEST quarterly investment report July to September 2015 NEST 2022 Retirement Fund For the of the 47 single year NEST Retirement Date Funds please refer to the last page of this report - 2.7% -0.2% 7.4% 1.3% 7.0% 1.7% Benchmark: CPI Consolidation phase The Consolidation phase prepares a scheme member s assets for retirement and typically begins ten years before their NEST Retirement Date Fund matures. Investments in this phase are progressively switched out of higher risk assets. The primary objective of the Consolidation phase for funds maturing from 2021 is to outperform CPI after all charges while aiming to progressively dampen volatility as a scheme member s fund approaches maturity. For NEST Retirement Date Funds maturing up to 2020, the Consolidation phase objective is to manage the risks associated with converting a member s accumulated savings into a cash lump sum. Consolidation phase 9.6% 9.1% 2.3% Developed market equities 3.8% 33.8% Volatility Value at risk September % 9.7% 9.7% 13.8% 17.8% UK index-linked gilts Short-dated gilts Emerging market equities We monitor risk carefully using a variety of tools to make sure the risk we re taking in each fund is appropriately rewarded. This table shows expected volatility and value at risk (VaR) in this fund for the quarter. Lifecycle of the NEST 2022 Retirement Fund This NEST Retirement Date Fund is in the Consolidation phase. As it has a relatively short period to maturity, it will only experience this final phase. It will be exposed to decreasing degrees of risk until it closes in The NEST lifecycle ensures that our members are exposed to the right amount of risk at different stages in their savings career. Our estimate of this risk path is shown as the middle line on the lifecycle chart. We dynamically manage the actual amount of risk taken depending on the investment environment. The upper and lower limits of the risk budget are shown above and below the estimated risk path. The actual amount of risk taken will vary between these limits. The marker shows the fund s current place in its lifecycle, and its risk level relative to the projected risk budget range.

4 Page 4 NEST quarterly investment report July to September 2015 NEST 2060 Retirement Fund For the of the 47 single year NEST Retirement Date Funds please refer to the last page of this report 5.0% 3.0% 1.0% -1.0% 2.7% -0.2% 4.1% 0.5% (December 2013) Benchmark: CPI Foundation phase preserve capital while seeking sufficient return to match inflation and cover all scheme charges target a long-term volatility average of 7 per cent significantly reduce the likelihood of extreme investment shocks take appropriate risk at appropriate times, taking account of current economic and market conditions. During our research, younger savers told us that they would react very negatively to falls in the value of their savings. For this reason, members who join in their 20s will typically spend up to five years in the Foundation phase. In this phase we concentrate on steadily growing the balance rather than exposing our members to substantial investment risk. This lower volatility approach still aims to at least match inflation after taking charges into account. We use the Consumer Price Index measure for inflation. Foundation phase 9.1% 3.7% Developed market equities Volatility Value at risk 10.6% 34.5% September % 9.2% Short-dated gilts 11.4% 13.9% 16.9% UK index-linked gilts We monitor risk carefully using a variety of tools to make sure the risk we re taking in each fund is appropriately rewarded. This table shows expected volatility and value at risk (VaR) in this fund for the quarter. Lifecycle of the NEST 2060 Retirement Fund This NEST Retirement Date Fund is in the Foundation phase. Over its lifecycle it will experience all three phases until it matures in The NEST lifecycle ensures that our members are exposed to the right amount of risk at different stages in their savings career. Our estimate of this risk path is shown as the middle line on the lifecycle chart. We dynamically manage the actual amount of risk taken depending on the investment environment. The upper and lower limits of the risk budget are shown above and below the central risk path. The actual amount of risk taken will vary between these limits. The marker shows the fund s current place in its lifecycle, and its risk level relative to the projected risk budget range.

5 Page 5 NEST quarterly investment report July to September 2015 NEST Ethical Fund - growth phase portfolio % 2.8% 10.7% 4.3% 9.4% 4.8% Benchmark: CPI + 3% provide a fund choice for members who want to invest in a portfolio that reflects their ethical concerns target investment returns of inflation plus 3 per cent and cover all scheme charges expect a long-term volatility average of 13 per cent aim for steady growth in real terms over a members time saving maximise incomes in retirement by taking sufficient investment risk at appropriate times while reducing the likelihood of investment shocks Ethical policy highlights The current policies and criteria for investing in fossil fuel companies are set to be strengthened. There will also be a review next year of existing policies and criteria around employee relations and supply chain labour standards given emerging issues such as the living wage, zero-hour contracts and migrant work. 5.3% 5.2% Developed market equities 6.1% Volatility Value at risk September % 12% 11.8% 50.3% Short-dated gilts We monitor risk carefully using a variety of tools to make sure the risk we re taking in each fund is appropriately rewarded. This table shows expected volatility and value at risk (VaR) in this fund for the quarter. 21.2% UK index-linked gilts Lifecycle of the NEST Ethical Fund The NEST Ethical Fund currently offers members a diversified portfolio of ethical equities, real estate and ethical corporate bonds as well as nominal and index-linked gilts. As with the NEST Retirement Date Funds we manage the allocation between these asset types to protect members retirement pots and take advantage of market growth. In addition, the NEST Ethical Fund follows a similar lifecycle to NEST Retirement Date Funds using separate Foundation, Growth and Consolidation funds. At the moment we move members between these phases using a formula based on their NEST retirement date. However, as our membership expands we ll look at ways we could dynamically manage transitions as we do for the NEST Retirement Date Funds.

6 Page 6 NEST quarterly investment report July to September 2015 NEST Sharia Fund NEST Higher Risk Fund provide a fund with an investment approach based on Islamic law expect a long-term volatility average of 22 per cent grow a member s pot in real terms over the course of their savings career This fund aims to deliver investment growth after inflation and charges are taken into account while investing only in Sharia-compliant equities. Lifestyling and diversification at the asset allocation level are not currently possible for this fund as it invests entirely in a single asset class. take more investment risk than the NEST Retirement Date Funds in pursuit of higher potential returns expect a long-term volatility average of 17 per cent reduce the likelihood of extreme investment shocks by diversifying across a range of return-seeking asset classes Members investments will gradually be de-risked as they approach retirement. Volatility Value at risk Volatility Value at risk September % 21.5% September % 18.5% 15.0% 1 5.0% -5.0% -0.2% 10.3% 9.1% 10.2% 9.0% Benchmark: Dow Jones Islamic Market Titans 100 index 1 0.3% 9.1% 7.8% management charge of 0.3%* Developed market equities 7.7% Developed market equities % Emerging market equities 68.4%

7 Page 7 NEST quarterly investment report July to September 2015 NEST Lower Growth Fund NEST Pre-retirement Fund preserve the nominal value of contributions and grow the fund in line with low-risk money market investments achieve an investment return that is in line with or better than wholesale money market short-term interest rates before charges expect a long-term volatility average of 0.5 per cent This fund is provided for members who seek to take as little investment risk as possible. invest in 75 per cent annuity-tracking and 25 per cent liquiditymatching assets expect a long-term volatility average of 4 per cent This fund provides a savings vehicle for members close to retirement who expect to buy a retirement income through an annuity and take 25 per cent of their pot as a cash lump sum. NEST Retirement Date Funds that are close to maturity are currently targeting 100 per cent liquiditymatching assets on the assumption that savers will take these small pots as cash lumps sums. This fund is offered as an alternative approach. Volatility Value at risk Volatility Value at risk September % 0.1% September % 6.1% 0.6% 0.4% 0.2% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% Benchmark: 7-day sterling LIBID rate 2.9% 3.6% 5.4% 24.9% 100% 37.7% 37.4%

8 Page 8 NEST quarterly investment report July to September 2015 NEST Retirement Date Funds * NEST Retirement Date Fund 1 year 3 year 5 year Since launch** NEST Retirement Date Fund 1 year 3 year 5 year Since launch** CPI CPI *Figures in this table are annualised total gross returns, not deducting NEST s annual management charge of 0.3 per cent. They were updated Feb 2019 to correct labelling of investment data **Launch date for most NEST Retirement Date Funds is August The 2058 Fund launched in January Each subsequent fund was launched the following January. So the 2059 Fund was launched in January 2013 and so on. Important information The value of investments may go down as well as up and the return of your investment is not guaranteed. Fluctuations in financial markets, currencies and other risks may cause fluctuations in the value of investments. Any fund objective or target should not be considered as guarantee of of any fund. Derivatives may also be used for efficient portfolio management purpose. This document does not constitute advice on whether to invest in this fund. Neither this document nor any data contained within this document is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. You may wish to consult with an appropriately qualified financial adviser in relation to your investments and any change to them. This document has been created by National Employment Savings Trust (NEST). This document is valid as at the date of its publication. This document and data contained within this document is provided for information purposes only and may not be reproduced or extracted or used for any other purpose. This document includes and/or is based on data that is owned by and obtained from third-party sources. Data from third-party sources is provided as is and is not verified by NEST. Additional disclaimers which apply to the third-party data are available on our website No undertaking is given, or representation or warranty is made, express or implied, by NEST or by any third-party source that the information in this document is current, accurate, complete or error free, and the information must not be relied upon as such. Neither the third-party sources nor NEST accept responsibility for any loss caused to any recipient of this document as a result of any error, inaccuracy or incompleteness of this document or as a result of any third-party data. NEST Corporation p34776-v /19