Core Risk Profile Portfolios quarterly investment report

Transcription

1 For intermediaries Core Risk Profile Portfolios quarterly investment report Quarter three 2018

2 Contents About the Core Risk Profile Portfolios 3 Market review quarter three Fund performance 6 Adventurous Core Portfolio 7 Growth Plus Core Portfolio 8 Growth Core Portfolio 9 Balanced Plus Core Portfolio 10 Balanced Core Portfolio 11 Cautious Core Portfolio 12 Conservative Core Portfolio 13 Our current lifestyle process 14 Important information 16 Please note: from Q1 2018, all performance data shown in this report is now sourced from Financial Express. The information contained in this report constitutes a factual review of performance only and is correct as at 30 September It shouldn t be taken as a recommendation or advice. This communication is for inancial advisers only. It mustn t be distributed to, or relied on by, customers. There s no guarantee that fund objectives will be met. The value of an investment may go down as well as up and investors may get back less than originally invested. Page 2 of 16

3 About the Core Risk Profile Portfolios There are seven funds in the Core Risk Proile Portfolio range. Each targets a diferent level of risk ranging from low to above average. The volatility ranges that each portfolio targets are shown in brackets in the diagram below. Adventurous (16% 18%) Growth Plus (14% 16%) Growth (12% 14%) Balanced Plus (10% 12%) Balanced (8% 10%) Cautious (6% 8%) Conservative (3% 6%) Our Core Risk Proile Portfolios are designed to ofer a simple, low cost solution to the complicated business of choosing and managing a mix of investments to suit your clients goals. Each portfolio invests in a well-diversiied blend of investment types, industries and managers. We ve employed independent consultant Morningstar Investment Management Europe Limited (Morningstar) to help us build and manage these portfolios. Morningstar takes strategic and tactical asset allocation decisions to help the portfolios meet their two primary objectives, which are: to keep within targeted risk ranges over a market cycle, and to deliver the best possible performance for the amount of risk taken. To meet these objectives, Morningstar regularly reviews the portfolios and recommends changes where this is necessary. However, there s no guarantee that the funds will meet their objectives. The range also includes seven lifestyle versions that aim to cater for investment needs right up to retirement. For more information on how our Core Risk Profile Portfolios work and how to use them, please visit our website at Page 3 of 16

4 Market review quarter three 2018 This was a broadly positive quarter for equity markets worldwide, with UK equities the only region to deliver negative returns in the face of intensifying US-China trade sanctions and continuing Brexit negotiations. US equities came out in front, with the S&P 500 closing the quarter at a record high, in line with further signs of strong economic growth. Japanese equities followed closely behind on the back of positive economic news and the re-election of Shinzo Abe as leader of the ruling party potentially making him Japan s longest serving Prime Minister. European equities overcame some early market turbulence to end the quarter positively despite concerns over EU Bank exposure to the Turkish lira and further Brexit uncertainty. Asia Paciic and emerging market equities both made modest gains but both were held back by the region s biggest economy China. Continuing disputes between the US and China over trade tarifs dominated news feeds. Elsewhere in emerging economies, a currency crisis in Turkey drove investors to less risky assets. The impact of continued uncertainty around Brexit led to negative returns for UK equities as the UK government publicised its preparations for the possibility of leaving the European Union (EU) with no deal. In Fixed interest markets, UK gilts and corporate bonds faced a challenging quarter and inished in negative territory, as UK interest rates rose and inlation hit its highest level in six months. Meanwhile, sterling fell on the back of increasing uncertainty around the UK s impending exit from the EU Return FTSE All Share FTSE World Europe ex UK G S&P 500 TR in GB TSE TOPIX How did the major markets perform over 12 months? FTSE Asia Paciic ex Japan G FTSE Emerging G FTSE Actuaries UK Conventional Gilts All Stocks IBOXX UK Sterling Non-Gilts All Maturities LIBOR LIBID GBP 1 Week Global equity markets all inished positively over the 12 months to the end of September US equities remained out in front as clear signs of continuing economic growth outweighed the ongoing threat of a global trade war between the region and China. Japanese equity markets followed, remaining robust in the face of continued geo-political tensions around further trade tarifs. UK equities also made gains despite the threat of a Brexit no deal for the UK becoming more likely. Asia Paciic markets and emerging market equities were most visibly impacted by the threat of a US-China trade war but still remain in positive territory. European equities experienced political risk across the region, impacting returns, while ixed interest assets gave the most modest returns as tensions around Brexit developed Return FTSE All Share FTSE World Europe ex UK G S&P 500 TSE TOPIX FTSE Asia Paciic ex Japan G FTSE Emerging G FTSE Actuaries UK Conventional Gilts All Stocks IBOXX UK Sterling Non-Gilts All Maturities LIBOR LIBID GBP 1 Week Source: Financial Express, produced by Aegon. Charts compiled using total return indices to 30 September Figures in sterling so include the efect of currency luctuations. Past performance is no guide to future performance. Page 4 of 16

5 What were the key events in the major markets in quarter three? Here s a round-up of some of the key events that shaped the investment returns we ve seen across the major markets. In the UK, economic data released in Q3 conirmed that UK gross domestic product (GDP) grew by 0.4% (quarter on quarter) in line with market expectations. Sterling luctuated over the quarter as Brexit uncertainty continued to dominate national news. The EU rejected the government s Chequers plan and Prime Minister Theresa May reiterated the potential of a no deal Brexit. The Bank of England (BoE) raised interest rates from 0.5% to 0.75% and Mark Carney, BoE governor, said to expect further increases in due course. Elsewhere, the Oice of National Statistics (ONS) announced a fall in UK unemployment to its lowest since In the US, Wall Street showed no sign of weakness as the US-Chinese trade war raged on, with the S&P 500 experiencing its strongest quarter since December Economic data released in Q3 presented by the Bureau of Economic Analysis (BEA) conirmed that the rate of GDP growth for the region doubled to 4.2% for Q2 up from 2.2% in Q1 (on an annualised basis); the highest rate of growth since Q Elsewhere, the Federal Reserve (Fed) raised US interest rates for the third time this year and announced its aim to tighten monetary policy, in line with record unemployment lows and accelerating wage growth. In Europe, economic data released in Q3 conirmed Eurozone GDP grew by 0.4% for Q2 (quarter on quarter). The Italian populist government agreed on a higher budget deicit of 2.4% of GDP, sending Italian bonds tumbling. In France, President Emmanuel Macron, announced a budget deicit increase next year to 2.8% from 2.6%, as the region experienced slowing economic growth for Q2. Inlation rose by 2.1% for the region against the European Central Bank (ECB) target of just under 2% of headline inlation. Japan began to show the efects of the escalating trade tensions between the US and China, as the Japanese yen weakened against the US dollar during the period. Economic data released in Q3 conirmed that Japanese GDP growth rose by 1.9% over Q (on an annualised basis). Shinzo Abe was re-elected as leader of the Liberal Democratic Party in a landslide victory while his government announced ambitious projections for further economic growth for Abe also conirmed his intention to proceed with his proposed consumption tax increase in Q4 2019, which, when last increased in 2014, plunged Japan into a recession. In Asia paciic regions, China sufered with its major stocks down and macroeconomic data for Q2 looked disappointing. Meanwhile, it was a more positive quarter for New Zealand and Australia, with both regions experiencing a positive boost to their respective currencies on the back of positive GDP igures for Q2. In Indonesia, data recorded for Q2 highlighted the fastest economic growth in more than four years for the region, with GDP rising 4.2% over Q2 (quarter on quarter). Emerging markets experienced a disruptive quarter with investor risk appetite rattled in the face of increasing trade disputes between the US and China. China s central bank adjusted its strategy for regulating the yuan in order to stabilise the currency market for the region. US trade tarifs sent the Turkish lira tumbling and plunged the region into a historic currency crisis. In India, the rupee slumped in line with a rise in crude oil prices, making it one of the weakest emerging market currencies in In contrast, GDP growth in Thailand for Q2 deied expectations, growing 4.6% on last year. In Fixed interest, the ECB s president Mario Draghi announced an optimistic outlook on growth for the Eurozone and that interest rates would remain on hold for the region. This resulted in a sharp boost to European bond yields and pushed US Treasury bond yields higher. In the UK, gilts fell as the UK faced an increasing likelihood of leaving the European Union with a no deal over Brexit. Emerging market currencies came under pressure, with the Turkish Lira plunging 23% against the dollar. Page 5 of 16

6 Fund performance Fund 3 months Year to date 1 year 3 years 5 years Adventurous Core Portfolio Growth Plus Core Portfolio Growth Core Portfolio Balanced Plus Core Portfolio Balanced Core Portfolio Cautious Core Portfolio Conservative Core Portfolio Source: Financial Express. Produced by Aegon. Figures in s, bid-to-bid basis, net of charges, with gross income reinvested to 30 September Past performance is no guide to future performance. The value of an investment may go down as well as up and investors may get back less than originally invested. The chart below shows the target risk/volatility ranges for each portfolio (the blue bands), expressed in standard deviation terms, and the orange circle shows the actual volatility. To give a more accurate picture, standard deviation (volatility) is generally measured over periods of at least three years. Three year annualised volatility Conservative Cautious Balanced Balanced Plus Growth Growth Plus Adventurous Portfolio risk range Portfolio volatility Three-year annualised target volatility, to end September 2018 Source: Financial Express. Produced by Aegon. Figures show annualised volatility from 30 September 2015 to 30 September Past performance is no guide to future performance. Each Core Risk Proile Portfolio has a target risk range that it aims to meet over a market cycle, which can last three years or more. Currently every portfolio except the Conservative Core is lagging behind its respective target risk range. The Core Risk Proile Portfolios are created based on long-term market analysis, so when market risk is lower than average, we would expect to see the portfolios fall below their target risk range. Market volatility is now lower than average in most sectors, especially those traditionally considered higher risk like equities (shares). This is relected in the volatility of the Core Risk Proile Portfolios but is even more pronounced at the higher end of the risk spectrum the Adventurous Core Portfolio is lagging further behind its target risk range than the less risky portfolios. These target risk ranges may be met by increasing exposure to riskier markets in each portfolio. We believe, however, that investors are best served by a diversiied portfolio that matches their individual risk proile over the long-term, as opposed to chasing market risk in periods of low volatility. For example, currently, the Adventurous Core Portfolio would have to be 100% invested in global emerging markets, to be close to its 16% 18% target risk range. As market volatility returns to normal levels, we expect the Core Risk Proile Portfolios to close the gap on their target risk ranges. Whether market volatility is high or low, the ranges will ofer what we believe is an appropriate level of risk and suitably diversiied asset allocation. Page 6 of 16

7 Adventurous Core Portfolio This fund aims to provide long-term capital growth while keeping risk in a target volatility range of 16% 18% over a market cycle, which can last three years or more. Morningstar helps us select and manage the blend of funds it contains. However, these can change and the performance of the Adventurous Core Portfolio takes these changes into account. Fund 3 months 1 year 3 years 5 years Adventurous Core Portfolio UK Index Tracker North American Equity Tracker Emerging Markets Equity Tracker Japan Equity Tracker Continental European Equity Tracker Paciic ex-japan Equity Tracker Source: Financial Express. Produced by Aegon. Figures in s, bid-to-bid basis, net of charges, with gross income reinvested to 30 September Fund launched on 6 June Past performance is no guide to future performance. The value of an investment may go down as well as up and investors may get back less than originally invested. Please note: the funds shown below the blue line are the current components of the Adventurous Core Portfolio as at 30 September Fund commentary, quarter three 2018 Despite a broadly positive period for most equity markets, the Adventurous Core Portfolio returned a modest 1.5% during Q The largest holding in the portfolio, the UK Index Tracker (41.7% of assets), weighed heavily on performance, returning -1.4% as the UK faced the prospect of leaving the EU without a deal on Brexit. The North American Equity Tracker (15.5%) helped to counter poor UK performance, coming out in front for the portfolio with a 7.8% return as the S&P 500 ended on a record high. Japanese equities (12.4%) also helped overall, returning 4.2%. Asian equities also boosted returns via the Paciic ex Japan Equity Tracker (5.9%) returning 2.4%. It was a diferent story for the Emerging Markets Equity Tracker (13.0%), returning -0.1% as investor sell-ofs in favour of less risky assets escalated in the face of further US-China trade disputes. The Continental European Equity Tracker (11.5%) gave a positive return of 2.5% despite a rocky political period for the region. Asset allocation at end September % 11.5% 12.4% 41.7% UK Index Tracker North American Equity Tracker Emerging Markets Equity Tracker Japan Equity Tracker Continental European Equity Tracker Pacific Ex-Japan Equity Tracker 13.0% 15.5% The igures above may not add up to exactly 100% due to rounding. Page 7 of 16

8 Growth Plus Core Portfolio The fund aims to provide long-term capital growth while keeping risk in a target volatility range of 14% 16% over a market cycle, which can last three or more years. Morningstar helps us select and manage the blend of funds it contains. However, these can change and the performance of the Growth Plus Core Portfolio takes these changes into account. Fund 3 months 1 year 3 years 5 years Growth Plus Core Portfolio UK Index Tracker North American Equity Tracker Emerging Markets Equity Tracker Continental European Equity Tracker Japan Equity Tracker Paciic ex-japan Equity Tracker Corporate Bond Tracker Overseas Government Bond Tracker Overseas Corporate Bond Tracker Cash Source: Financial Express. Produced by Aegon. Figures in s, bid-to-bid basis, net of charges, with gross income reinvested to 30 September Fund launched on 6 June Past performance is no guide to future performance. The value of an investment may go down as well as up and investors may get back less than originally invested. Please note: the funds shown below the blue line are the current components of the Growth Plus Core Portfolio as at 30 September Fund commentary, quarter three 2018 The Growth Plus Core Portfolio rose by 1.1% over the quarter. Its majority weighting in UK equities (39.4% of assets) detracted as it fell by -1.4% in line with the increasing possibility of a Brexit no deal. North American equities (11.9%) gave a positive performance of 7.8% as US equities closed the quarter at record highs. European equities (11.1%) made a solid 2.5% gain. Japanese (10.3%) and Asian (5.0%) equities added to returns as the region appeared robust despite a continued threat of a global trade war. The same could not be said of emerging markets, with the Emerging Markets Equity Tracker (11.4%) posting -0.1%, as investors turned to safer investment options. In ixed interest markets, UK corporates detracted, while the Overseas Corporate Bond Tracker (1.9%) gave 1.1%. The Overseas Government Bond Tracker s (2.1%) bias towards US instruments impacted returns. Cash (3.0%) returned -0.1%, as Sterling fell against the dollar on the back of increasing tension around the UK s exit from the EU. Asset allocation at end September % 1.9% 2.1% 4.0% 5.0% 10.3% 11.1% 39.4% UK Index Tracker North American Equity Tracker Emerging Markets Equity Tracker Continental European Equity Tracker Japan Equity Tracker Pacific Ex-Japan Equity Tracker Corporate Bond Tracker Overseas Government Bond Tracker Overseas Corporate Bond Tracker Cash 11.4% 11.9% The igures above may not add up to exactly 100% due to rounding. Page 8 of 16

9 Growth Core Portfolio The fund aims to provide long-term capital growth while keeping risk in a target volatility range of 12% 14% over a market cycle, which can last three or more years. Morningstar helps us select and manage the blend of funds it contains. However, these can change and the performance of the Growth Core Portfolio takes these changes into account. Fund 3 months 1 year 3 years 5 years Growth Core Portfolio UK Index Tracker North American Equity Tracker Emerging Markets Equity Tracker Japan Equity Tracker Continental European Equity Tracker Corporate Bond Tracker Paciic ex-japan Equity Tracker Overseas Government Bond Tracker Overseas Corporate Bond Tracker UK Gilts All Stock Tracker Cash Source: Financial Express. Produced by Aegon. Figures in s, bid-to-bid basis, net of charges, with gross income reinvested to 30 September Fund launched on 6 June Past performance is no guide to future performance. The value of an investment may go down as well as up and investors may get back less than originally invested. Please note: the funds shown below the blue line are the current components of the Growth Core Portfolio as at 30 September Fund commentary, quarter three 2018 The Growth Core Portfolio gained 0.9% over the quarter. Its bias towards UK equities via the UK Index Tracker (33.4% of assets) impacted returns as the fund sufered on the back of increasing tensions around the UK s exit from the EU. The North American Equity Tracker (10.8%) was the top performer for the portfolio, returning a robust 7.8% as the US showed further signs of signiicant economic growth, while the fund s exposure to European equities (9.1%) made gains of 2.5%. It was a positive quarter for Asian markets, despite the US-China trade dispute raging on, with the Japan Equity Tracker (9.2%) returning 4.2% and the Paciic ex-japan Equity Tracker (3.9%) returning 2.4%. The Emerging Markets Equity Tracker (9.5%) fell to -0.1%, as the efects of further US trade tarifs on China caused local currencies to tumble. Fixed interest markets were mixed, with the Corporate Bond Tracker (7.0%), UK Gilts All Stock Tracker (2.0%) and Cash (9.0%) all impacted by the higher interest rate environment in the UK. The Overseas Corporate Bond Tracker (2.9%) beneitted from its exposure to US and Japanese Corporate bonds and gained 1.1%. Asset allocation at end September % 2.0% 3.2% 3.9% 7.0% 9.1% 9.2% 9.0% 9.5% 10.8% 33.4% UK Index Tracker North American Equity Tracker Emerging Markets Equity Tracker Japan Equity Tracker Continental European Equity Tracker Corporate Bond Tracker The igures above may not add up to exactly 100% due to rounding. Pacific Ex-Japan Equity Tracker Overseas Government Bond Tracker Overseas Corporate Bond Tracker UK Gilts All Stocks Tracker Cash Page 9 of 16

10 Balanced Plus Core Portfolio The fund aims to provide long-term capital growth while keeping risk in a target volatility range of 10% 12% over a market cycle, which can last three or more years. Morningstar helps us select and manage the blend of funds it contains. However, these can change and the performance of the Balanced Plus Core Portfolio takes these changes into account. Fund 3 months 1 year 3 years 5 years Balanced Plus Core Portfolio UK Index Tracker Corporate Bond Tracker North American Equity Tracker Continental European Equity Tracker Japan Equity Tracker Emerging Markets Equity Tracker Overseas Government Bond Tracker Overseas Corporate Bond Tracker Paciic ex-japan Equity Tracker Index-Linked Gilt Tracker UK Gilts All Stock Tracker Cash Source: Financial Express. Produced by Aegon. Figures in s, bid-to-bid basis, net of charges, with gross income reinvested to 30 September Fund launched on 6 June Past performance is no guide to future performance. The value of an investment may go down as well as up and investors may get back less than originally invested. Please note: the funds shown below the blue line are the current components of the Balanced Plus Core Portfolio as at 30 September Fund commentary, quarter three 2018 The Balanced Plus Core Portfolio s exposure to UK markets led to a more modest return of 0.7% over the quarter. The UK Index Tracker (27.4%) fell by -1.4% with the increasing likelihood that the UK could leave the EU with a no deal scenario. In turn, the Corporate Bond Tracker (10.9%) was impacted by its majority weighting in the UK and returned -0.6%. Elsewhere, the fund beneited from exposure to global equities, with North American equities (9.6%) boosting performance as the S&P 500 experienced a record high and European equities rose to 2.5%. Exposure to Japan was positive while emerging markets felt a more challenging quarter at the hands of a growing currency crisis in Turkey and further US-trade tarifs, returning -0.1%. The Paciic ex-japan Equity Tracker (3.0%) appeared robust in the face of continuing debates between China and the US on trade. UK and overseas government bonds all bared the impact of the interest rate hikes in the US and UK, and sufered negative returns as a result. The Overseas Corporate Bond Tracker (5.8%) gave 1.1% as its weighting in US and Japanese corporate funds boosted its return. Cash (10.9%) returned -0.1% as the pound fell against the dollar during the period. Asset allocation at end September % 2.0% 3.0% 5.8% 6.4% 6.8% 7.1% 10.9% 8.2% 9.6% 27.4% 10.9% UK Index Tracker Corporate Bond Tracker North American Equity Tracker Continental European Equity Tracker Japan Equity Tracker Emerging Markets Equity Tracker The igures above may not add up to exactly 100% due to rounding. Overseas Government Bond Tracker Overseas Corporate Bond Tracker Pacific Ex-Japan Equity Tracker Index-Linked Gilt Tracker UK Gilts All Stocks Tracker Cash Page 10 of 16

11 Balanced Core Portfolio The fund aims to provide long-term capital growth while keeping risk in a target volatility range of 8% 10% over a market cycle, which can last three or more years. Morningstar helps us select and manage the blend of funds it contains. However, these can change and the performance of the Balanced Core Portfolio takes these changes into account. Fund 3 months 1 year 3 years 5 years Balanced Core Portfolio UK Index Tracker Corporate Bond Tracker Overseas Government Bond Tracker North American Equity Tracker Overseas Corporate Bond Tracker UK Gilts All Stock Tracker Continental European Equity Tracker Japan Equity Tracker Emerging Markets Equity Tracker Index-Linked Gilt Tracker Cash Source: Financial Express. Produced by Aegon. Figures in s, bid-to-bid basis, net of charges, with gross income reinvested to 30 September Fund launched on 6 June Past performance is no guide to future performance. The value of an investment may go down as well as up and investors may get back less than originally invested. Please note: the funds shown below the blue line are the current components of the Balanced Core Portfolio as at 30 September Fund commentary, quarter three 2018 The Balanced Core Portfolio rose by 0.2% over Q as its signiicant weighting in UK equity and ixed interest markets led to a more muted performance. UK equity exposure via the UK Index Tracker (23.2% of assets) was negative while UK bond exposure via the Corporate Bond Tracker (17.0%) struggled as the region prepared for the possibility of leaving the EU without a deal on Brexit. Global equity exposure was positive with the North American Equity Tracker (6.6%) coming out on top for the portfolio rising by 7.8%. European equities rallied to give a positive performance of 2.5%. The Japan Equity Tracker (5.1%) gave 4.2% and the Emerging Markets Equity Tracker (4.8%), feeling the impact of further US trade tarifs, fell to -0.1%. Beneitting from a weighting in US and Japanese Corporate bonds, the Overseas Corporate Bond Tracker (6.3%) returned 1.1%, while the Overseas Government Bond Tracker (7.0%) felt the efects of rising interest rates in the US and fell to -1.1%. UK government bond exposure via the UK Gilts All Stock Tracker (6.0%) and Index-Linked Gilt Tracker (2.0%) detracted, in line with the high-interest rate environment in the UK. Cash (16.0%) gave a negative return of -0.1% as Sterling fell against the dollar over the quarter. Asset allocation at end September % 23.2% 2.0% 4.8% 5.1% 5.9% 17.0% 6.0% 6.3% 7.0% 6.6% UK Index Tracker Corporate Bond Tracker Overseas Government Bond Tracker North American Equity Tracker Overseas Corporate Bond Tracker UK Gilts All Stocks Tracker The igures above may not add up to exactly 100% due to rounding. Continental European Equity Tracker Japan Equity Tracker Emerging Markets Equity Tracker Index-Linked Gilt Tracker Cash Page 11 of 16

12 Cautious Core Portfolio The fund aims to provide long-term capital growth while keeping risk in a target volatility range of 6% 8% over a market cycle, which can last three or more years. Morningstar helps us select and manage the blend of funds it contains. However, these can change and the performance of the Cautious Core Portfolio takes these changes into account. Fund 3 months 1 year 3 years 5 years Cautious Core Portfolio Corporate Bond Tracker UK Index Tracker UK Gilts All Stock Tracker Overseas Government Bond Tracker Overseas Corporate Bond Tracker Index-Linked Gilt Tracker North American Equity Tracker Japan Equity Tracker Continental European Equity Tracker Emerging Markets Equity Tracker Cash Source: Financial Express. Produced by Aegon. Figures in s, bid-to-bid basis, net of charges, with gross income reinvested to 30 September Fund launched on 6 June Past performance is no guide to future performance. The value of an investment may go down as well as up and investors may get back less than originally invested. Please note: the funds shown below the blue line are the current components of the Cautious Core Portfolio as at 30 September Fund commentary, quarter three 2018 The Cautious Core Portfolio fell to -0.1% over the course of Q Exposure to UK equity and ixed interest markets weakened overall performance as the region faced the impending possibility of leaving the EU in 2019 with no deal. The Corporate Bond Tracker (18.8% of assets) and UK Index Tracker (16.9%) both fell to -0.6% and -1.4% respectively, the fund s exposure to UK government bonds also sufered as a result with the UK Gilts All Stock Tracker (9.8%) and Index-Linked Gilt Tracker (4.9%) falling over the period. Elsewhere, positive performance from global equities saw a move away from safer assets which impacted overseas bonds. In global equities, the top performer for the portfolio was the North American Equity Tracker (4.4%), returning a strong 7.8%. The Eurozone faced a turbulent quarter politically yet rallied to close in positive territory, with the Continental European Equity Tracker (3.1%) gaining 2.5%. The emerging Markets Equity Tracker (2.9%) felt the efects of further US trade tarifs and fell to -0.1%. Cash (21.0%) fell to -0.1% as Sterling tumbled against the dollar on increasing Brexit jitters. With the global economy showing signs of further progress, there was less requirement for safer assets, resulting in a negative return of -1.9% for and a -1.1% return for the Overseas Government Bond Tracker (7.4%). The also fell to -1.5% over the period. The Overseas Corporate Bond Tracker (6.7%) beneitted from an exposure to US and Japanese Corporate bonds and gained 1.1%, while the Japan Equity Tracker (4.1%) gained 4.2%. Asset allocation at end September % 3.1% 4.1% 4.4% 21.0% 4.9% 6.7% 7.4% 18.8% 9.8% 16.9% Corporate Bond Tracker UK Index Tracker UK Gilts All Stocks Tracker Overseas Government Bond Tracker Overseas Corporate Bond Tracker Index-Linked Gilt Tracker The igures above may not add up to exactly 100% due to rounding. North American Equity Tracker Japan Equity Tracker Continental European Equity Tracker Emerging Markets Equity Tracker Cash Page 12 of 16

13 Conservative Core Portfolio The fund aims to provide long-term capital growth while keeping risk in a target volatility range of 3% 6% over a market cycle, which can last three or more years. Morningstar helps us select and manage the blend of funds it contains. However, these can change and the performance of the Conservative Core Portfolio takes these changes into account. Please note, on 1 June 2012, the fund s name changed from the Conservative Select Portfolio. The fund was also moved into the Core Risk Proile Portfolio fund range. Fund 3 months 1 year 3 years 5 years Conservative Core Portfolio Corporate Bond Tracker UK Gilts All Stock Tracker Overseas Government Bond Tracker Overseas Corporate Bond Tracker UK Index Tracker Index-Linked Gilt Tracker North American Equity Tracker Japan Equity Tracker Cash Source: Financial Express. Produced by Aegon. Figures in s, bid-to-bid basis, net of charges, with gross income reinvested to 30 September Fund launched on 31 December Past performance is no guide to future performance. The value of an investment may go down as well as up and investors may get back less than originally invested. Please note: the funds shown below the blue line are the current components of the Conservative Core Portfolio as at 30 September 2018 Fund commentary, quarter three 2018 The Conservative Core Portfolio returned -0.4% over Q Due to its exposure to UK markets, the fund felt the efects of continued Brexit uncertainty as the UK prepared for the possibility of leaving the EU with a no deal Brexit. The Corporate Bond Tracker (20.9% of assets) fell by -0.6%, while the UK Index Tracker (7.8%) fell by -1.4%. As the portfolio follows a low-risk strategy and holds bias towards ixed interest, it was also impacted by growing investor conidence in the global economy and a steer away from safer investment options. Government bonds fell across the board with the UK Gilts All Stock Tracker (12.9%), Overseas Government Bond Tracker (10.2%) and Index-Linked Gilt Tracker (6.0%) impacted by the high-interest rate environment in both the UK and US. The Overseas Corporate Bond Tracker (9.2%) had a more positive quarter due to its weighting in US and Japanese Corporate bonds, gaining 1.1%. The Japan Equity Tracker (2.0%) gained 4.2%, while the North American Equity Tracker (2.2%) came out in front for the portfolio, returning 7.8%. Cash (28.8%) made a negative return of -0.1% as the pound fell against the dollar over the period. Asset allocation at end September % 2.0% 2.2% 28.8% 6.0% 7.8% 9.2% 10.2% 12.9% Corporate Bond Tracker UK Gilts All Stocks Tracker Overseas Government Bond Tracker Overseas Corporate Bond Tracker UK Index Tracker The igures above may not add up to exactly 100% due to rounding. Index-Linked Gilt Tracker North American Equity Tracker Japan Equity Tracker Cash Page 13 of 16

14 Our current lifestyle process The Core Risk Proile Portfolio range also includes lifestyle versions of each fund for an even simpler solution that caters for your client s needs right up to retirement. Our Core Risk Proile Lifestyle Portfolios use a two-stage investment process called lifestyling. Initially, they ll be invested in the Core Risk Proile Portfolio that matches their attitude to risk. Then, as they approach retirement, their investment changes with the aim of giving them more certainty about the amount of pension they ll be able to buy via an annuity. The table below shows the Core Risk Proile Lifestyle Portfolio and the underlying Core Risk Proile Portfolio it invests directly into during the growth stage. Core Risk Profile Lifestyle Portfolio Core Risk Profile Portfolio Adventurous Core Lifestyle Portfolio Adventurous Core Portfolio Growth Plus Core Lifestyle Portfolio Growth Plus Core Portfolio Growth Core Lifestyle Portfolio Growth Core Portfolio Balanced Plus Core Lifestyle Portfolio Balanced Plus Core Portfolio Balanced Core Lifestyle Portfolio Balanced Core Portfolio Cautious Core Lifestyle Portfolio Cautious Core Portfolio Conservative Core Lifestyle Portfolio Conservative Core Portfolio Percentage of your fund Months to start of retirement year Start of retirement year How do the funds work in the lifestyle stage? The lifestyle stage starts six years before the start of your client s target retirement year and recognises that their priorities may change as retirement approaches. It assumes they ll buy an annuity to provide themselves with an income (pension) for life (or a speciied number of years) when they retire. Some years before they re due to retire, we ll progressively start switching their investment into our Long Gilt fund with the aim of giving them an income when they retire. Funds used in the growth stage Long gilts Cash We ll also move some of their pension pot into our Cash fund in the inal two years of their investment. *Please note, the lifestyle stage may vary for each fund. Please see the individual factsheets for more information. Page 14 of 16

15 Retirement If your clients don t buy an annuity in their selected retirement year, they ll automatically be switched into our Retirement fund. This keeps their asset allocation at 75% invested in our Long Gilt fund and 25% invested in our Cash fund. They will remain in this fund until they tell us otherwise. The Retirement fund is designed for short-term investing, where preserving the size of the annuity your client can buy is the priority. Its returns may not keep pace with inlation. From time to time, we ll review the structure of the fund and we may make changes if we need to. If we decide to replace this fund with another, we ll write to your clients in advance. There s no guarantee that fund objectives will be met. The value of an investment may go down as well as up and investors may get back less than originally invested. Why long gilts? Long gilts are ixed-interest investments issued by the UK government with maturity dates of 15 years or more. When annuity rates (which determine how much pension your clients will get per year) go down, the value of a pension pot that s invested in long gilts is likely to go up, and vice versa. This means that if your clients invest in long gilts, the level of income they'll get at retirement is less likely to change dramatically if annuity rates move up or down just before they retire. Long gilt values can go down as well as up. The relationship between long gilts and annuity rates isn t perfect and can be afected by other factors. Why cash? Moving into cash caters for your clients tax-free cash entitlement. Your clients can choose how much of their cash entitlement they want to take, but our process assumes they'll take the maximum which, based on current legislation, is 25% of their pension pot. Page 15 of 16

16 Important information Please note we reserve the right to add, remove and replace funds within the Core Risk Proile Portfolios or alter weightings between funds with the aim of making sure they continue to meet their aims and objectives. This may afect the additional charges/ expenses we disclose for the portfolios. We ll announce any changes on the Fund changes and news' section of our website: investments/fund-changes-and-news.html Aegon UK Aegon UK is a brand name of Scottish Equitable plc. Scottish Equitable plc, registered oice: Edinburgh Park, Edinburgh EH12 9SE. Registered in Scotland (No ). Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number An Aegon company AEGON UK plc INV /18