INVESTMENT REPORT Q EDS 1994 PENSION SCHEME AVCS MAY 2017

Transcription

1 MAY 2017

2 CONTENTS 1. Introduction Market Background Asset Allocation Performance Summary...6 Appendix A: Fund Fact Sheets MERCER i

3 1 Introduction The EDS 1994 Pension Scheme (the Scheme ) is an HM Revenue and Customs approved Defined Benefit pension arrangement. This report provides details of the unit-linked funds in which members of the Scheme may invest their additional voluntary contributions ( AVCs ). The Scheme Trustee has appointed Old Mutual Wealth Life Assurance Limited ( Old Mutual Wealth, formerly Skandia ), to provide vehicles for members of the Scheme to invest their AVCs. In addition, members hold legacy AVCs with Prudential M&G Ltd ( Prudential ) and Equitable Life Assurance Society ( Equitable Life ). Old Mutual Wealth continues to be approved by Mercer s Security Committee for the placement of unit-linked business. Assets continue to be held in with-profits funds with Equitable Life and Prudential, although these options are now closed to contributions from new and existing members. Performance of these funds is not included in this report. MERCER 1

4 Total Return (%) INVESTMENT REPORT Q Market Background Market Index Returns Three Months Performance to 31 March UK Equities Overseas Equities US Equities Europe (ex-uk) Equities Japanese Equities Asia Pacific (ex-japan) Equities Emerging Markets Over 15 Year Gilts UK Over 5 Year Non-Gilts Index-Linked All Stocks Gilts Global Bonds Emerging Markets Debt Property Cash Commodities Sterling Return Local Currency Return Source: Thomson Reuters Datastream All major developed equity markets got off to a strong start in the first quarter of In sterling terms, Asia Pacific (ex-japan) equities delivered the strongest returns of 11.2%, while Japanese equities returned the lowest of all regions at 3.6%. Emerging markets also delivered strong returns at 8.9% which was led by positive economic news coming from China, as well as a softer rhetoric from the US over trade protectionism. Bond markets also delivered positive results, but not to the same extent as equities. Yields fell in the UK which translated to a 2.6% increase in the Over 15 Year Gilts Index. Over 5 year index-linked gilts returned 2.0% while UK corporate bonds returned 1.8%. UK property rose 2.3%, while a fall in energy prices drove commodities down 6.2% in sterling terms. MERCER 2

5 Market Background Following a strong 2016, the first quarter of 2017 saw broadly positive returns for both growth and defensive assets. Equities performed positively in all regions, with particularly strong returns in the Asia Pacific (ex-japan) and emerging market regions. Fixed income assets were also broadly positive over the quarter, despite the Federal Reserve raising its target interest rate in March. Commodities posted negative returns, mainly driven by a fall in energy prices. The UK economy has continued to grow, and increased a further 0.7% in the fourth quarter of Indeed, the Bank of England upgraded its GDP growth estimate for 2017 from 1.4% to 2.0%. This was despite continuing uncertainty surrounding the nature of the UK s exit from the European Union as Theresa May triggered Article 50 on 29 March 2017, signalling the beginning of the two year window for the UK to negotiate its exit from the European Union. Year on year CPI inflation rose from 1.8% to 2.3% to the end of February which was above expectations. In the US, equity markets continued to rally to historic highs following Donald Trump s inauguration in January, on the prospect of supportive policies of fiscal spending and tax cuts. US business and consumer confidence levels have continued to increase and steadily improving labour markets, higher retail sales and stronger new home sales, which reached a 10-year high, suggest a fundamentally healthy economy. This has occurred despite continuing political uncertainty and Trump s notable failures in reforming immigration and healthcare policies. As anticipated by markets, the Federal Reserve raised the interest rate by 0.25% in March to bring it to a target range of 0.75% to 1.00%. This had a muted impact of markets, which had broadly anticipated the rise. In Europe, economic sentiment continued to strengthen, suggesting that the economic recovery is gathering momentum; GDP growth improved to an almost 6-year high and the PMI, a measure of business confidence, rose to its highest level since In February, the European unemployment rate reached a near 8-year low of 9.5%, while Germany s jobless rate fell to 5.8% - the lowest since German reunification in Eurozone headline inflation rose from 1.1% to 1.5% over the quarter. Meanwhile, the European Central Bank has indicated that current fundamentals imply further monetary stimulus is unlikely to be needed in the near term. Emerging Markets were one of the strongest performing regions over the quarter. Concerns surrounding capital outflows from China subsided slightly on the back of a weaker US dollar. Russia was the outlier as it suffered from weaker energy prices. Broadly speaking, securities within emerging market exporting countries strengthened due to reduced fears surrounding Trump s proposed protectionist trade policies. MERCER 3

6 3 Asset Allocation Option Value as at 31 March 2017 ( ) (%) EDS AVC 1994 Passive UK Equity Fund 145, BlackRock - Aquila Life UK Equity Index 145, EDS AVC 1994 Passive Overseas Equity Fund 90, BlackRock - Aquila Life World (ex UK) Fund 90, EDS AVC 1994 Cash Fund 92, BlackRock - Aquila Life Cash 92, EDS 1994 Pension Scheme AVC Passive Base Fund 723, BlackRock - Aquila Life UK Equity Index 252, BlackRock - Aquila Life World (ex UK) Fund 251, BlackRock - Aquila Life Over 15 Yrs UK Glt Ind 110, BlackRock - Aquila Life Corporate Bond Index All stocks 108, EDS 1994 Pension Scheme AVC Passive Bond Fund 238, BlackRock - Aquila Life Over 15 Yrs UK Glt Ind 120, BlackRock - Aquila Life Corporate Bond Index All stocks 117, EDS 1994 Pension Scheme AVC Active Base Fund 466, Baillie Gifford - Global Alpha Pension 66, Baillie Gifford - UK Equity Alpha Pension 65, Artemis - Institutional Equity Income 66, MFS Meridian - Global Equity 66, SK IIP Schroder QEP Gbl Core 65, Majedie - UK Equity 64, Insight - UK Broad Market Bond Fund (Aggr) 71, MERCER 4

7 EDS 1994 Pension Scheme AVC Active UK Equity Fund 220, Baillie Gifford - UK Equity Alpha Pension 74, Artemis - Institutional Equity Income 74, Majedie - UK Equity 72, EDS 1994 Pension Scheme AVC Active Global Equity Fund 212, Baillie Gifford - Global Alpha Pension 71, MFS Meridian - Global Equity 70, SK IIP Schroder QEP Gbl Core 70, Total 2,190, Figures may not sum due to rounding. Source: Old Mutual Wealth. In addition to the assets invested within unit-linked funds on the Old Mutual Wealth (formerly Skandia) platform, members of the Scheme also invest their AVCs in with-profits funds with Prudential and Equitable Life. These amounted to 63,901 with Prudential (31 December 2016, excluding final bonus) and 59,041 with Equitable Life (31 December 2016). MERCER 5

8 4 Performance Summary The performance of the investment options available on the Old Mutual Wealth platform is shown in the table below over periods to 31 March Option Quarter (%) 12 months (%) 3 years (% p.a.) Inception to date (% p.a.) EDS 1994 Pension Scheme AVC Passive Base Fund* Benchmark Relative return EDS 1994 Pension Scheme AVC Active Base Fund Benchmark Relative return EDS AVC 1994 Passive UK Equity Fund* Benchmark Relative return EDS AVC 1994 Passive Overseas Equity Fund* Benchmark Relative return EDS 1994 Pension Scheme AVC Active UK Equity Fund Benchmark Relative return EDS 1994 Pension Scheme AVC Active Global Equity Fund Benchmark Relative return MERCER 6

9 Option Quarter (%) 12 months (%) 3 years (% p.a.) Inception to date (% p.a.) EDS 1994 Pension Scheme AVC Passive Bond Fund* Benchmark Relative return EDS AVC 1994 Cash Fund Benchmark Relative return Fund performance is shown net of fees and all fund information has been sourced from Old Mutual Wealth. Particularly over shorter time periods, there may be differences between the performance of passive funds and their benchmarks. Inception date of all funds is 11 January 2008 except for the Passive Overseas Equity AVC Fund, which is 14 January * The underlying BlackRock mandates in these passive funds changed over Q from Aquila Life to Aquila Connect funds. The performance shows a larger than expected tracking error for the passive equity funds in particular. This is largely down to Old Mutual reporting the benchmark and portfolio returns at different pricing points. After accounting for the pricing point difference, the performance of all passive funds has been broadly in line with the relevant benchmark indices over all time periods shown. The Active UK Equity Fund and Active Global Equity Fund outperformed their respective benchmarks by 0.1% and 0.2% respectively over the first quarter of 2017, while the Active Base Fund has underperformed its benchmark by 0.5%, over the same period. Over the one year period, the Active Global Equity Fund and Active Base Fund outperformed their respective benchmarks by 0.2% and 0.4% respectively, while the Active UK Equity Fund underperformed its benchmark by 1.0%, on a net of fee basis. Within the Active UK Equity Fund, performance was mixed. Majedie led by outperforming the benchmark significantly, while Baillie Gifford delivered more modest outperformance. Artemis dragged on returns as it underperformed the FTSE All Share benchmark. Within the Active Global Equity Fund, both Baillie Gifford and Schroders outperformed the benchmark, while MFS underperformed. The outperformance of the Active Base Fund was driven by outperformance from the Active Global Equity Fund (which is a 42.5% allocation within the Fund) and also by the Insight Aggregate Bond Fund (which is a 15% allocation within the Fund) which outperformed its composite benchmark. MERCER 7

10 Absolute and Relative Performance over the quarter to 31 March 2017 % Passive Base Fund Active Base Fund Passive UK Equity Fund Passive Overseas Equity Fund Active UK Equity Fund Active Global Equity Fund Passive Bond Fund AVC Cash Fund Fund Benchmark Excess Return Absolute and Relative Performance over the year to 31 March 2017 % Passive Base Fund Active Base Fund Passive UK Equity Fund Passive Overseas Equity Fund Active UK Equity Fund Active Global Equity Fund Passive Bond Fund AVC Cash Fund Fund Benchmark Excess Return MERCER 8

11 Important Notices References to Mercer shall be construed to include Mercer LLC and/or its associated companies Mercer LLC. All rights reserved This report contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without Mercer s prior written permission. The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Past performance does not guarantee future results. Mercer s ratings do not constitute individualised investment advice. Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has not sought to verify it independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages), for any error, omission or inaccuracy in the data supplied by any third party. This does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or products or constitute a solicitation on behalf of any of the investment managers, their affiliates, products or strategies that Mercer may evaluate or recommend. For the most recent approved ratings of an investment strategy, and a fuller explanation of their meanings, contact your Mercer representative. For Mercer s conflict of interest disclosures, contact your Mercer representative or see The Old Mutual Wealth investment platform funds are written technically as a long-term insurance contract with Old Mutual Wealth (the "insurer"). Mercer recommends the placing of business with insurers which have a sufficient degree of financial strength. Mercer s assessments of insurers current financial strengths are based on the latest available regulatory returns (to the Financial Conduct Authority in the case of a UK-based insurer) and any other relevant information the insurer has supplied to us. Mercer accepts no responsibility or liability, including for consequential or incidental damages or for a particular insurer s future solvency. Mercer does not undertake to carry out monitoring of an insurer s financial condition on behalf of clients after a contract is put into effect. Steve Turner May 2017 MERCER 9

12 APPENDIX A Fund Fact Sheets The following fund fact sheets give further detail on the range of unit-linked funds (not including the with-profits funds) in which members of the Scheme may invest their additional voluntary contributions. The aim of these fact sheets is to give members further detail on each of the funds available, provide key comparatives between these funds in terms of return target, risk profile etc. and to give a fund suitability indicator to members in terms of position to retirement and risk appetite. MERCER 10

13 EDS 1994 Pension Scheme Passive Base Fund MERCER

14 EDS 1994 Pension Scheme Active Base Fund MERCER

15 EDS 1994 Pension Scheme Passive UK Equity Fund MERCER

16 EDS 1994 Pension Scheme Passive Overseas Equity Fund MERCER

17 EDS 1994 Pension Scheme Active UK Equity Fund MERCER

18 EDS 1994 Pension Scheme Active Global Equity Fund MERCER

19 EDS 1994 Pension Scheme Passive Bond Fund MERCER

20 EDS 1994 Pension Scheme Cash Fund MERCER

21 Mercer The Paragon, Counterslip, Bristol BS1 6BX