Performance for the nine months and three years to 31 December 2020
| Sector | Fund value as at 31 December 2020 (£m) | Fund return: nine months to 31 December 2020 (£m) | Fund return: three years to 31 December 2020 (annualised) (%) |
|---|---|---|---|
| Global bonds | 314.2 | 3.6 | 4.6 |
| Multi-sector credit | 347.8 | 25.6 | 5.6 |
| Cash (including foreign currency) | 41.6 | 0.1 | 1.3 |
| Passive equities | 1,701.1 | 29.9 | 5.4 |
| Active global equities | 305.2 | 40.0 | 7.9 |
| Global smaller companies equities | 267.1 | 18.6 | – |
| Emerging market equities | 275.9 | 43.0 | 6.0 |
| Sustainable equities | 152.7 | 9.1 | – |
| Low volatility equities | 325.6 | 16.2 | – |
| Diversified growth funds | 482.6 | 16.5 | 1.2 |
| Property | 396.3 | 1.2 | 3.8 |
| Infrastructure | 203.7 | 2.7 | 5.3 |
| Private debt | 109.2 | -0.3 | 6.9 |
| Total fund | 4,923.0 | 22.2 | 4.8 |
The Fund value as at 31st December 2020 stood at £4,923 million, an increase of around £330 million over the quarter.
Key issues over the quarter
- Equities, bonds and the diversified growth funds have all delivered good positive returns over the nine months of the financial year to date, as markets have rebounded following the falls of the quarter to March. Property, infrastructure and private debt have all had weaker returns over the last six months. While equity markets fell in March 2020 and then bounced back, the impact of the pandemic on the private markets had less initial impact due to lagged valuation cycles, but has resulted in lower returns in the current financial year.
- The allocations to global bonds and multi-sector credit were ahead of their benchmarks, both for the nine months and for the three year period to 31 December 2020.
- Within the equity allocations, active global equities have performed above benchmark, with significant out-performance from the Brunel Global High Alpha portfolio. The active global equities return also includes the performance of the specialist funds up to September when they were transitioned to Brunel’s Global Smaller Companies portfolio.
- The returns of the Global Smaller Companies and Sustainable Equities allocations are above benchmark. The lower absolute returns reflect the shorter period of investment, as they were only launched in September/October 2020. The performance of the RWC Fund has contributed to the total global smaller companies return over the last quarter.
- The emerging markets portfolio has also had high above benchmark returns.
- The Low Volatility Equities portfolio has performed well below the benchmark. This is to be expected in a rising market, as low volatility equities are expected to provide more stable returns. Although the performance against the broader global equity index appears disappointing, the portfolio has performed in line with the more comparable MSCI Minimum Volatility Index. Over the quarter, the fund outperformed this index by 0.9% while, over the year, it performed in line with it. This gives some comfort that the managers’ strategy is in line with the market proxy, despite the fact that the market conditions witnessed over the past year have not been favourable to a low volatility investment strategy.
- The diversified growth funds have recovered with a +16.5% return over the nine months, but this has not made up for the poor performance in the quarter to 31 March. Performance over the last full year remains negative. The DGFs have now transitioned across to Brunel’s Diversifying Returns Fund, and the performance reported is a combination of the previous managers (Barings and Baillie Gifford) and the Brunel portfolio.
Asset allocation
The current asset allocation, compared to the 2020/21 target allocation, is shown in the table below:
| Header label | Target allocation (%) | Target allocation (%) |
|---|---|---|
| Fixed interest and cash | 15.0 | 14.3 |
| Equities | 58.0 | 61.5 |
| Alternatives/Other | 27.0 | 24.2 |
- Following another positive quarter for equity markets, the allocation to equities is now 3.5% above target. The largest over-weights are to passive equities which have benefited from the currency hedging strategy, and active global equities which have benefited from significant outperformance. £45 million was transferred from Brunel’s Global High Alpha portfolio to the Smaller Companies portfolio during December in line with the Committee’s decision at the November meeting.
- The global bonds allocation is slightly below the target allocation following a flat performance over the quarter.
- Given that equities are 3.5% above the target allocation, it would be good practice to rebalance the allocations back to target. However, the major underweight area is the allocation to alternatives/other, and within that the allocations to the private markets headings. For the private markets allocations, we are dependent on committed funds being called on by Brunel for their underlying investments, so it is not possible simply to reallocate funds quickly. Therefore, it was agreed to take no action to rebalance the equity allocation.