Member FundWatch. DHL Group Retirement Plan. Fourth quarter Willis Towers Watson. All rights reserved.

Transcription

1 Member FundWatch DHL Group Retirement Plan Fourth quarter Willis Towers Watson. All rights reserved.

2 EXEC SUMMARY Executive summary Headline Comments Action The Plan s assets increased by 3.% over the fourth quarter of 216 Over the fourth quarter of 216, the Plan s assets increased from 1,438.8 million to 1,482. million. This is due both to generally positive absolute performance across asset classes over the period, along with net inflows of approximately 15.7 million. - The fund produced generally positive returns over the quarter Donald Trump elected US president Post the US election, developed world bond yields have risen The underlying funds produced positive absolute returns over the quarter with the exception of the Pre-Retirement Fund and Over 5 year ILG Fund. The funds continued to track their benchmarks within acceptable tolerances over the quarter. On election night, equity markets initially fell by 3-5% on average, US 1-year bond yields fell by as much as 15bps, the dollar fell against the yen and euro but strengthened against Emerging Market currencies. These price changes were consistent with higher uncertainty and higher risk premiums. However, after those initial price moves, we have seen US real yields and discounted inflation rates rise significantly, the dollar strengthen against most developed world and emerging currencies, and US equity prices increase. US 1-year bond yields in the US have increased the most, driven as much by longer maturities as short. Both real interest rate and inflation expectations have risen. Markets were previously discounting that the Fed Funds Rate would rise by only 25bps a year for several years. That looked inconsistent with the gradual tightening of capacity in the US economy, given its steady self-reinforcing cyclical expansion

3 VALUATION Valuation Individual fund breakdown Q3 216 value Net flows ( m) Return Q4 216 value Q4 216 weight ( m) (%) Lifestyle funds 1, , Diversified Growth Fund Cautious Growth Fund Global Equity (3:7) Fund Pre-Retirement Fund Liquidity Fund Ethical Global Equity Fund Freestyle funds Over 5 Year ILG Fund World EM Equity Fund Alternatives Fund HSBC Amanah Global Total 1, , Comments Over the fourth quarter of 216, the Plan s assets increased from 1,438.8 million to 1,482. million. This is due both to generally positive absolute performance across asset classes over the period, along with net inflows of approximately 15.7 million. The majority of assets are invested in the Diversified Growth Fund (59.4%) and Cautious Growth Fund (22.3%). No action is required at this stage. Notes: Data for table sourced from LGIM. Units as of 31 December 216 were: Diversified Growth Fund 83,831,889.89, Cautious Growth Fund 129,83,97.95, Global Equity (3:7) Fund 59,45,771.8, Pre-Retirement Fund 26,338,419.32, Liquidity Fund 18,257,154.71, Ethical Global Equity Fund 2,921,748.89, Over 5 Year ILG Fund 4,4,925.41, World EM Equity Fund 3,216,254.92, Alternatives Fund 9,82.76, HSBC Amanah Global Fund 333,

4 PERFORMANCE Performance Short and long-term performance and key mandate information Lifestyle funds Diversified Growth Fund Jul 12 Cautious Growth Fund Jan 12 Global Equity (3:7) Fund Mar 12 Pre-Retirement Fund Dec 11 Liquidity Fund Apr 9 Ethical Global Equity Fund Apr 9 Freestyle funds Value ( m) 5 years (% pa) 3 years (% pa) 12 months (%) Q4 216 (%) Inception Fund BM +/- Fund BM +/- Fund BM +/- Fund BM +/- date Over 5 Year ILG Fund Apr 9 World EM Equity Fund Mar 12 Alternatives Fund Sep 12 HSBC Amanah Global Jun 15 Notes: Performance data sourced from Legal & General Investment Management on behalf of Legal & General Assurance Limited, benchmark information provided by FTSE International Limited, Dow Jones and London Interbank Bid Rate Inception date shown is for performance measurement purposes and may differ from the actual inception date of any given mandate Performance figures are shown net of fees. Where the Plan has not been invested in the funds for long enough, notional performance has been provided 4

5 DHL Group Retirement Plan Supporting material 5

6 Contents Topic Page 1 Fund structure 7 2 MarketWatch 1 3 Disclaimers 16 6

7 1. Fund structure White label name Fund name AMC (%) Benchmark name Performance target Weight (%) Lifestyle funds Diversified Growth Fund Global Equity 3:7-75% Hgd.125 Composite RPI +4% 5. World EM Equity 1. Global RE Equity 1. Infra Equity MFG Fund - GBP Hgd 6. AAA-AA-A Bonds-All Stocks 4. All-Stocks ILG 4. High Yield Bond 5. EM Passive Local Ccy Govt Bond 3. EM Passive US Ccy Govt Bond 3. Commodity Composite 5. Cautious Growth Fund Global Equity 3:7-75% Hgd.125 Composite RPI +2% 2. World EM Equity 5. Global RE Equity 5. Infra Equity MFG Fund - GBP Hgd 8. Over 15 Year Gilts 5. AAA-AA-A Bonds-All Stocks 25. All-Stocks ILG 5. High Yield Bond 8. EM Passive Local Ccy Govt Bond 6. EM Passive US Ccy Govt Bond 6. Commodity Composite 7. Notes: The benchmark of the Diversified Growth Fund consists of a composite of indices representing diversified global equity markets, corporate bonds, UK and emerging market government bonds, property and other alternative assets The benchmark of the Cautious Growth Fund consists of a composite of indices representing diversified global equity markets, corporate bonds, government bonds and other alternative assets 7

8 Fund structure White label name Fund name AMC (%) Benchmark name Performance target Weight (%) Lifestyle funds Global Equity (3:7) Fund World ex-uk Devt Eq - GBP Hgd.125 Composite Tracking 46. UK Equity 3.5 World ex-uk Devt Equity 16.6 World EM Equity 6.9 Pre-Retirement Fund All-Stocks ILG.1 Composite Tracking 2.3 Over 15 Year Gilts Gilt Gilt Gilt Gilt Gilt Gilt 3. Pre-Retirement (Corp Bonds) 7. Liquidity Fund A-1+ or equivalent.1 Libid 7-Day Tracking 51. A Ethical Global Equity Fund Ethical Global Equity.125 FTSE AW - 4Good Global Tracking 1. Notes: The benchmark of the Global Equity (3:7) Fund consists of a composite of indices representing gilts and corporate bond funds The benchmark of the Pre-Retirement Fund consists of a composite of indices representing 3/7 distribution between UK and overseas equities, 75% GBP Hedged 8

9 Fund structure White label name Fund name AMC (%) Benchmark name Performance target Weight (%) Freestyle funds Over 5 Year ILG Fund Over 5 Year ILG.73 FTSE A Index-Linked > 5 Years Tracking 1. World EM Equity Fund World EM Equity.24 FTSE Emerging NetTax (UKPN) Tracking 1. Alternatives Fund Global RE Equity.2 Composite Tracking 22.8 AAA-AA-A Bonds-All Stocks 22.8 High yield Bond 22.8 EM Passive Local Ccy Govt Bond 11.4 EM Passive US Ccy Govt Bond 11.4 Commodity Composite 9. HSBC Amanah Global HSBC Amanah Global.35 Dow Jones Islamic Market Titans 1 Tracking 1. Note: The benchmark of the Alternatives Fund consists of a composite of indices representing equities, corporate bonds, emerging market government bonds, property and other alternative assets 9

10 2. MarketWatch summary (i) Total return indices for global markets (%) Period ending 31 December 216 (%) 1 yrs 7 yrs 5 yrs 3 yrs 1 yr 6 mo 3 mo 5 yrs volatility Global Equities FTSE All-World Index Global Companies FTSE All-World Index ( -hedged) Without currency risk FTSE All-World (ex UK) Index Excluding UK FTSE World Index Excluding Emerging Markets MSCI World Large Cap That are large MSCI World Small Cap That are small Regional Equities FTSE All-Share Index In the UK FTSE North America Index In North America FTSE All-World Dev Europe (ex UK) Index In Europe (excluding UK) FTSE Japan Index In Japan FTSE All-World Dev Asia Pacific (ex Japan) Index In Asia Pacific (excluding Japan) FTSE All-World All Emerging Index In Emerging Markets Fundamental Equities FTSE RAFI All-World 3 Index Fundamentally weighted FTSE RAFI Developed 1 In Developed Markets n/a FTSE RAFI Emerging Index In Emerging Markets n/a UK Bonds FTSE-A Gilts All-Stocks Index UK Government Bonds FTSE-A Gilts 15+ Years Index With a long-term duration FTSE-A Index-Linked Gilts Index That are index-linked FTSE-A Index-Linked Gilts 15+ Years Index With a long-term duration iboxx Non-Gilts Index Corporate Bonds iboxx Non-Gilts 15+ Years Index With a long-term duration Global Bonds Merrill Lynch Global HY BB-B ( -hedged) Index Global High Yield Bonds Bloomberg Barclays Global Aggregate Index Global Bonds JPM GBI-EM Global Diversified Index EM Government Bonds (Local) JPM EMBI Global Diversified Index ( -hedged) EM Government Bonds (Hard) JPM CEMBI Broad Diversified Index ( -hedged) Emerging Market Corporate Debt Other IPD Monthly Index Commercial UK Property Goldman Sachs Commodity Index Global Commodity Futures UK Retail Prices Index UK Inflation UK Consumer Price Index UK Inflation (excluding housing costs) HFRI Fund Weighted Composite Index ( -hedged) Average Hedge Fund WTI Crude Oil WTI Crude Oil price LIBOR 3 Month Index UK Cash Notes: Data sourced from FTSE International Limited, Research Affiliates, S&P Dow Jones Indices, Markit Group Limited, BofAML, Bloomberg L.P., J.P. Morgan, Office for National Statistics, Hedge Fund Research, Inc., Energy Information Administration and MSCI, data provided as is The HFRI Fund Weighted Composite Index is based on estimates for the most recent four months. All returns are in sterling and are annualised for periods over one year 1

11 MarketWatch summary (ii) Total return indices for global markets, periods ending 31 December 216 (%) All World equities UK equities North America equities Europe ex UK equities Japan equities Asia Pacific ex Japan equities Emerging Markets equities UK gilts UK non-gilts UK indexlinked High yield debt (Hedged) Global aggregate EMD (local) EMD (hard) UK property 3 months 1 year 3 years Fund of Commodities UK RPI Crude Oil hedge funds Exchange rates as at 31 December 216 GBP USD EUR JPY Currency % $ 1 GBP = $1 USD = EUR = JPY = GBP change against US dollars, euro and yen 5 yrs 3 yrs 1 yr 6 mo 3 mo $ USD JPY Notes: Green GBP appreciated. Red GBP depreciated Data sourced from FTSE International Limited, Research Affiliates, S&P Dow Jones Indices, Markit Group Limited, BofAML, Bloomberg L.P., J.P. Morgan, Office for National Statistics, Hedge Fund Research, Inc., Energy Information Administration and MSCI (data provided as is ) All returns are in sterling and are annualised for periods over one year EUR

12 MarketWatch summary (iii) Donald Trump elected US president On election night, equity markets initially fell by 3-5% on average, US 1-year bond yields fell by as much as 15bps, the dollar fell against the yen and euro but strengthened against Emerging Market currencies. These price changes were consistent with higher uncertainty and higher risk premiums. However, after those initial price moves, we have seen US real yields and discounted inflation rates rise significantly, the dollar strengthen against most developed world and emerging currencies, and US equity prices increase. Italian electorate cast a strong vote against Renzi On 4 th December, the Italian electorate cast a strong vote against constitutional changes proposed by Matteo Renzi, who immediately resigned as Prime Minister. While some of the no-voters were motivated by populist policy, others saw the proposed changes as flawed, arguing they would place too much power in the hands of central government. Most political parties are calling for an early election (scheduled for beginning of 218) and it is now likely that this will take place in the middle of 217. The Eurosceptic 5Star Movement is currently tied for the lead in the polls. The European Central Bank (ECB) has amended its asset purchase programme Firstly, it will continue its purchases until at least December 217. Secondly, it has expanded the potential pool of purchasable bonds by including bonds yielding below the ECB s deposit rate of -.4%. Finally, it will reduce its bond purchases from 8 billion to 6 billion per month starting from April 217, although Mario Draghi stated that the ECB will increase future purchases if warranted. Asset class ratings Three to five year horizon Global government bonds (ten year): Neutral Global inflation-linked bonds (ten year): Neutral Global credit (investment grade spreads): Moderately underweight Global equities: Moderately underweight Commodities: Neutral Interest rates (%) 8 UK EUR 6 US 4 2 Dec 6 Dec 8 Dec 1 Dec 12 Dec 14 Dec 16 Source: Bank of England, European Central Bank and Federal Reserve Measures of inflation (year-on-year) (%) 8 UK HICP - Euro 6 US Japan Dec 6 Dec 8 Dec 1 Dec 12 Dec 14 Dec 16 Source: Office for National Statistics, Eurostat, Bureau of Labor Statistics and e-stat 12

13 MarketWatch equity markets Developed equities: Moderately underweight Emerging equities: Moderately underweight Equity Market returns were strong over the quarter Equity markets continue to produce positive returns in sterling terms. All global regions produced positive absolute returns, with North American equities (9.%) and Japanese equities (5.1%) performing the strongest. Despite recent good performance, long-term earnings growth implied by the UK equity price still looks slightly low. Emerging Market equities underperformed developed Emerging Market equities returned 2.2% in sterling terms, underperforming developed markets which returned 6.9%. Emerging Market equities rallied strongly last year; mainly driven by low valuation levels, higher dollar liquidity, commodity price increases and a partial abatement of Chinese growth concerns. Following president-elect Trump s victory, markets have reversed some of their gains. However, currency declines have left many Emerging Market exporters in a more competitive position than previously and index exposure to secular growth stories, such as the Chinese tech market, is increasing over time. Market volatility increased over the quarter Implied equity volatility (as measured by VIX) remains at a historically low level and over the fourth quarter marginally increased from a starting point of 13.3, finishing the quarter at 14.. Willis Towers Watson outlook In recent years the combination of falling government bond yields (which reduce the rate at which company payouts are discounted) and high central bank liquidity (which pushes investors out along the risk curve) has increased equity valuations. In aggregate, these valuations now appear moderately high relative to our outlook a situation that has been exacerbated by recent performance. Therefore, we continue to forecast moderately low positive returns for global equity indices over the next five years. We recommend a neutral weight for Emerging Market equities relative to world equity. Cumulative performance of FTSE All-World equity regions Dec 6 Dec 8 Dec 1 Dec 12 Dec 14 Dec 16 Source: FTSE International Limited UK North America Dev Europe ex UK Japan Dev Asia Pacific ex Japan Emerging Implied equity volatility (VIX index) Dec 6 Dec 8 Dec 1 Dec 12 Dec 14 Dec 16 Source: Chicago Board Options Exchange 13

14 MarketWatch bond markets Global government: Neutral Global credit: Moderately underweight Post the US election, developed world bond yields have risen US 1-year bond yields in the US have increased the most, driven as much by longer maturities as short. Both real interest rate and inflation expectations have risen. Markets were previously discounting that the Fed Funds Rate would rise by only 25bps a year for several years. That looked inconsistent with the gradual tightening of capacity in the US economy, given its steady self-reinforcing cyclical expansion. Credit spreads were broadly unchanged over the quarter The credit spread on the iboxx Non-Gilts Index increased from 128 bps at the end of September to 13 bps at the end of December. The spread on BBB-rated non-gilts finished the quarter at 194bps, the same level as the end of September. Emerging Market debt returns were negative in sterling terms Hard currency spreads widened following the US election but have since contracted. In aggregate, while spreads remain higher than pre-election levels, they are roughly where they began in Q Total returns, however, have been fairly negative over the past quarter, impacted by sharply rising US Treasury bond yields. The US election has also impacted the local currency bond market, with emerging yields rising following the outcome. Overall, yields remain wider than they were at the start of Q Willis Towers Watson outlook In our view, secular factors make a return of interest rates and bond yields to historically normal levels unlikely. High debt levels, weak demographics and a lower capital intensity of investment mean equilibrium interest rates and fair value bond yields are lower than they have been historically. Justifiably low starting bond yields are driving historically weak expected five-year returns on bonds, but in many markets we still expect government bonds to provide a reasonable risk premium versus cash. In markets with near zero or negative bond yields, expected risk adjusted returns are sufficiently low and negatively skewed to provide an unattractive prospective return. Yield on UK Government bonds (%) Dec 15 3 Sep Dec 16 Maturity Source: Debt M anagement Office Real yield on UK index-linked gilts (%) Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Source: Debt M anagement Office UK credit spreads (%) Dec 11 Dec 12 Dec 13 Dec 14 Dec 15 Dec 16 Source: M arkit Group Limited Notes: The yield provided by different quality bonds in excess of government bond yields iboxx Non-Gilts AAA iboxx Non-Gilts AA iboxx Non-Gilts A iboxx Non-Gilts BBB 14

15 MarketWatch alternatives Commodities: Neutral Property: Neutral UK Property returned 2.6% over the fourth quarter The Brexit result at the end of June had a negative effect on property returns which, whilst the market has broadly stabilised, is likely to have a knock-on effect over the coming quarters particularly where funds have a high weighting to central London offices. Whilst Q3 216 saw a decline in values in the UK (central London offices being particularly hit), the market as a whole saw a rebound in Q The UK listed property stocks index (FTSE EPRA NAREIT UK Index) returned.5% over the quarter. Oil prices increased from $48.2 to $53.7 per barrel over Q4 Crude oil returned 17.1% over the quarter in sterling terms (8.7% in US dollar terms). In November, OPEC and 11 other countries agreed to cut production for the first time in eight years. The deal will reduce output by approximately 1.2 million barrels per day by January 217 and is designed to drain record global oil inventories. The deal ends the disagreements between the group s three largest producers Saudi Arabia, Iran and Iraq that started in 214. It was also broader than many had expected, extending beyond OPEC. Most strikingly, Russia agreed to unprecedented cuts to its own output. Hedge fund performance was broadly positive over the quarter In sterling terms, the HFRI Fund Weighted Composite Index returned 1.% over the quarter. Of the major hedge fund strategies, Distressed was the best performer, whilst Macro was the worst. Willis Towers Watson outlook We continue to recommend investments into alternative asset classes on the basis of their diversification benefits at times of higher market volatility. We recommend clients think holistically in which part of the portfolio do you want to target higher returns to compensate for low or negative yields and manage currency market distortions that being that non-us based clients monitor the underlying cost of hedging their US dollar exposure. Comparing property and bond yields (%) Dec 6 Dec 8 Dec 1 Dec 12 Dec 14 Dec 16 Source: FTSE International Limited and M SCI Inc. (data provided " as is" ) Source: Hedge Fund Research Inc. Returns are shown in USD terms Crude oil ($ per barrel) Property FTSE Index-Linked Gilts 5-15 Yr Index 3% GRY FTSE UK Gilts 5 to 15 years Performance of hedge fund strategies (%) Q Conv. Distressed Equity Equity Arbitrage Long/Short Market Neutral Event Driven Multi- Strategy Macro 12 months Merger Arbitrage Dec 6 Dec 8 Dec 1 Dec 12 Dec 14 Dec 16 Source: Energy Information Administration 15

16 3. Disclaimers Index vendor warranties and disclaimers Bank of America Merrill Lynch Merrill Lynch, Pierce, Fenner & Smith Incorporated and its affiliates ( BofAML ) indices and related information, the name Bank of America Merrill Lynch, and related trademarks, are intellectual property licensed from BofAML, and may not be copied, used, or distributed without BofAML s prior written approval. The licensee s products have not been passed on as to their legality or suitability, and are not regulated, issued, endorsed, sold, or promoted by BofAML. BOFAML MAKE NO WARRANTIES AND BEAR NO LIABILITY WITH RESPECT TO THE INDICES, INDEX DATA, ANY RELATED DATA, ITS TRADEMARKS, OR THE PRODUCT(S) (INCLUDING WITHOUT LIMITATION, THEIR QUALITY, ACCURACY, SUITABILITY AND/OR COMPLETENESS). For the avoidance of doubt, please also note that Willis Towers Watson and its affiliates and their respective directors, officers and employees (collectively, Willis Towers Watson ) accept no responsibility and will not be liable for any errors or misrepresentations in any BofAML information made available hereunder. FTSE FTSE International Limited ( FTSE ) FTSE 217. FTSE is a trademark of London Stock Exchange Group companies and is used by FTSE under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. For the avoidance of doubt, please also note that Willis Towers Watson accepts no responsibility and will not be liable for any errors or misrepresentations in any FTSE information made available hereunder. MSCI The MSCI information is the exclusive property of MSCI Inc. ( MSCI ) and may not be reproduced or redisseminated in any form or used to create any financial products or indices without MSCI s express prior written permission. This information is provided as is without any express or implied warranties. In no event shall MSCI or any of its affiliates or information providers have any liability of any kind to any person or entity arising from or related to this information. For the avoidance of doubt, please also note that Willis Towers Watson accepts no responsibility and will not be liable for any errors or misrepresentations in any MSCI information made available hereunder. Other Third Party Information This report incorporates information and data made available by certain third parties, including (but not limited) to: Hedge Fund Research Inc., ICE Benchmark Administration (LIBOR), Standard & Poor s Financial Services LLC, Bloomberg L.P. and Markit Group Limited (collectively, Third Parties ). Willis Towers Watson makes no representations or warranties, express or implied, as to the accuracy, completeness or reliability of any Third Party information made available hereunder and shall accept no responsibility or liability whatsoever for any errors or misrepresentations in respect of the same. JPMorgan Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index Level Data is used with permission. The Index Level Data may not be copied, used, or distributed without J. P. Morgan's prior written approval. Copyright 217, JPMorgan Chase & Co. All rights reserved. For the avoidance of doubt, please also note that Willis Towers Watson accepts no responsibility and will not be liable for any errors or misrepresentations in any J.P.Morgan information made available hereunder. 16

17 Disclaimers General disclaimer This report was prepared by Towers Watson Limited ( Willis Towers Watson, we or our ) for the DC Committee of the DHL Group Retirement Plan ( the Plan ). A copy of this report may be provided to members of the Plan by the DCC, subject to the terms and conditions below. This report was prepared by Willis Towers Watson for the DCC of the Plan on an agreed basis to meet its specific purposes and not for use by any third party. It does not purport to be and is not a substitute for specific professional advice to individual Plan members. As such, it should not be relied upon by members for individual investment or other financial decisions. Plan members are responsible for carrying out their own investigations before deciding which investment options to choose; members who are not sure what to do or want specific advice about their own personal circumstances should seek independent financial advice. Past performance should not be taken as representing any particular guide to future performance. In preparing this report we have placed reasonable reliance on data supplied to us by third parties including the Plan s investment managers and others involved or associated with the Plan. Whilst reasonable care has been taken to gauge the reliability of this data, we provide no guarantee as to the accuracy or completeness of this data and Willis Towers Watson cannot be held accountable for any errors or misrepresentations in the data made by any third party. This report is based on information that was available to us at the date it was prepared and takes no account of subsequent developments after that date. It may not be provided by Plan members to any other party without Willis Towers Watson s prior written permission, except as may be required by law. Unless otherwise specifically agreed in writing, Willis Towers Watson and its directors, officers and employees assume no duty of care to, and accept no responsibility and will not be liable to, any individual Plan member or other third party who may gain access to this report for any consequences howsoever arising from any use of or reliance on this report or the opinions we have expressed. Willis Towers Watson retains all intellectual property rights in the contents of this report. Any unauthorised use, duplication or distribution of this report without prior permission from Willis Towers Watson is prohibited. 17