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GOVERNED PORTFOLIO 4
ANNUAL REVIEW
Introduction
This document provides a rolling annual review of Governed Portfolio 4 and is designed to assist you in preparing your client reports. The information is provided on a sample basis only and you should ensure that your own final version satisfies your compliance requirements. For more information about the Governed Portfolios please visit adviser.royallondon.com/investment.
Investment objective
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with a moderately cautious or balanced risk attitude over a long time period.
Ongoing governance
Governed Portfolio 4 is reviewed quarterly by Royal London’s Investment Advisory Committee (IAC) to make sure it’s performing in line with its objective. The portfolio is invested in a mix of assets shown under current asset allocation. Performance of the portfolio is measured against a benchmark asset allocation, also shown below, which reflects the risk profile and investment timeframe of the portfolio. If the IAC decide that the mix of assets need adjusted it happens automatically on your clients behalf.
Current tactical allocation Benchmark asset allocation
/ 75.50% / RLP Global Managed / 15.40% / RLP Property
/ 6.25% / RLP Commodity
/ 0.20% / RLP Global High Yield
/ 0.60% / RLP Short Duration Global High Yield
/ 0.50% / RLP Long (15yr) Gilt
/ 0.50% / RLP Long (15yr) Index Linked
/ 1.05% / RLP Long (15yr) Corporate Bond
Tactical position as at 08/03/2018.
Performance to 31/12/17
Past performance is not a guide to the future. Prices can fall as well as rise meaning you may not get back the value of your original investment. Investment returns may fluctuate and are not guaranteed.
Percentage Change31/12/2016 / 31/12/2015 / 31/12/2014 / 31/12/2013 / 31/12/2012 / Compound Annual
Portfolio Name / 31/12/2017 / 31/12/2016 / 31/12/2015 / 31/12/2014 / 31/12/2013 / Growth Rate (%)
%Chg / %Chg / %Chg / %Chg / %Chg / 3 Years / 5 Years
Governed Portfolio 4 / 9.62 / 15.08 / 3.77 / 8.28 / 17.22 / 9.38 / 10.68
Composite benchmark / 9.33 / 16.89 / 2.35 / 8.26 / 14.77 / 9.36 / 10.20
Difference / 0.29 / -1.81 / 1.42 / 0.02 / 2.45 / 0.02 / 0.48
Source: Lipper, bid to bid, as at 31.12.2017, Royal London, as at 31.12.2017. All performance figures, including the figures shown for the growth in the benchmark, have been calculated net of a 1% annual management charge applicable to the Governed Portfolio. Please note that the Governed Portfolios and their benchmarks are rebalanced on a monthly basis.
Performance to 28/02/18
Past performance is not a guide to the future. Prices can fall as well as rise meaning you may not get back the value of your original investment. Investment returns may fluctuate and are not guaranteed.
Percentage Change28/02/2017 / 29/02/2016 / 28/02/2015 / 28/02/2014 / 28/02/2013 / Compound Annual
Portfolio Name / 28/02/2018 / 28/02/2017 / 29/02/2016 / 28/02/2015 / 28/02/2014 / Growth Rate (%)
%Chg / %Chg / %Chg / %Chg / %Chg / 3 Years / 5 Years
Governed Portfolio 4 / 4.96 / 19.61 / -1.80 / 11.29 / 10.90 / 7.22 / 8.75
Composite benchmark / 4.26 / 21.15 / -2.50 / 11.38 / 8.41 / 7.18 / 8.25
Difference / 0.70 / -1.54 / 0.70 / -0.09 / 2.49 / 0.04 / 0.50
Source: Lipper, bid to bid, as at 28.02.2018, Royal London, as at 28.02.2018. All performance figures, including the figures shown for the growth in the benchmark, have been calculated net of a 1% annual management charge applicable to the Governed Portfolio. Please note that the Governed Portfolios and their benchmarks are rebalanced on a monthly basis.
Portfolio Volatility
Governed Portfolio 4 targets a specific level of volatility which is shown on the table below.
VolatilityEstimated (%) / Target (%) / Upper bound (%) / Lower bound (%)
Governed Portfolio 4 / 12.1 / 12.5 / 13.8 / 11.3
Source: Investment Advisory Committee Report, data as at 31.12.2017. The volatility shown is the forward looking stochastic projection of the annualised volatility of the strategic asset allocation over a 15 year time period.
Governed Portfolios have a fixed risk target with a 10% tolerance either side, i.e. we will always aim to keep the volatility of the strategic asset allocation for Governed Portfolio 4 between 11.3% and 13.8% p.a. A higher portfolio volatility figure indicates we would expect the portfolio to produce a wider range of returns than the target volatility figure while a lower portfolio volatility figure indicates we would expect returns to be more stable than the target volatility figure.
Annual Review Log
Date / Details08/03/2018 / Our Investment Clock is in the later cycle ‘Overheat’ stage, with strong global growth and more risk of inflation. We have added to equities again, capitalising on stock market weakness and given that supportive world growth conditions remain in place. The change was funded out of property and high yield debt. With economies continuing to expand and inflation remaining benign, we are overweight global equities, global high yield bonds and commodities.
IAC Meeting – 01/03/2018 / Governed Portfolio 4 outperformed benchmark over 1, 3 and 5 years to end of December 2017. The existing tactical position applied 08/02/2018 continues. No change required to benchmark asset allocation.
08/02/2018 / As our Investment Clock moves further into ‘Overheat’ territory, we have added to equities at the margin and also added to commodities again, funded out of bonds. While the supply-demand balance is favourable for commodities, potential for weaker demand in China, the world’s biggest consumer of raw materials, is a concern. The sell-off in equities that began at the end of January seems exaggerated, and we are buying at lower levels, in expectation of a recovery in coming months as the world economy keeps expanding. We will look to maintain an overweight allocation to stocks.
18/01/2018 / A combination of our ‘Investment Clock’ moving further into ‘Overheat’ and positive price momentum mean that we have added to commodities at the margin, funded out of bonds. Nevertheless, we remain cautious on commodities as the Chinese economy is likely to slow, and recent US dollar weakness could reverse, in line with interest rate differentials. We slightly increased the position in high yield bonds. We will look to maintain our overweight position in stocks; with investor sentiment so positive, we do not rule out a short-term set-back and we would use such an opportunity to increase our equity allocation.
IAC Meeting – 01/12/2017 / Governed Portfolio 4 outperformed benchmark over 1 and 5 years to end of September 2017. The existing tactical position applied 16/11/2017 continues. No change required to benchmark asset allocation.
16/11/2017 / There are signs that growth is picking up, against a backdrop of loose monetary policy and low inflation. Against such a backdrop, central banks are unlikely to tighten in a meaningful way; this is positive for stocks and high yield, where we remain overweight. With seasonality now positive, we are likely to buy dips in stock markets rather than sell rallies. We’ve marginally increased our underweight in bonds and taken some profits in high yield. We have added to commodities at the margin.
12/10/2017 / There are signs that growth is picking up but wage inflation remains muted, despite low unemployment rates. Against such a backdrop, central banks are unlikely to tighten in a meaningful way; this is positive for stocks and high yield, where we remain overweight. With seasonality turning positive, we are likely to buy dips in stock markets rather than sell rallies. We’ve marginally trimmed our underweight in bonds to take advantage of the recent rise in yields. There is a potential risk of a slowdown in China, which may result in a softening of commodity prices and we have trimmed at the margin.
14/09/2017 / We took advantage of bouts of risk aversion on heightened geopolitical risk surrounding North Korea and extreme weather events in the US to add to the portfolio’s overweight in equities. The portfolio’s commodities exposure was moved to a marginal underweight, reflecting ongoing potential for weaker economic activity in China next year. We slightly decreased the portfolio’s exposure to government bonds given current low bond yields. We maintained the exposure to global high yield bonds as a lower risk way of gaining corporate exposure with some income. Property exposure was kept in line with the benchmark.
IAC Meeting – 29/08/2017 / Governed Portfolio 4 outperformed benchmark over 1, 3 and 5 years to end of June 2017. The existing tactical position applied 10/08/2017 continues. No change required to benchmark asset allocation.
10/08/2017 / We marginally increased the portfolio’s exposure to high yield bonds as a lower risk way of gaining corporate exposure with some income, as summer months tend to be more volatile. We maintained a small overweight position in equities and a neutral allocation to commodities, where potential for weaker economic activity in China increases the downside risk. Property exposure was kept in line with the benchmark.
13/07/2017 / We trimmed the portfolio’s position in commodities to neutral, and added to bonds at the margin, with our Investment Clock model moving into its ‘Recovery’ phase, and amid recent signs of weaker economic activity in China, which increases downside risk for commodities. We maintained a small overweight position in equities and have exposure to global high yield bonds as a lower risk way of gaining corporate exposure with some income, as summer months tend to be more volatile. We kept property exposure in line with the benchmark.
15/06/2017 / We reduced the underweight position in bonds by increasing exposure to gilts. We maintained a small overweight position in equities and added to positions in global high yield as a lower risk way of getting corporate exposure, as summer months tend to be more volatile. Recent signs of weaker economic activity in China led us to trim the overweight positions in commodities. We increased exposure to European equities, as the political outlook is more stable and European growth indicators continue to improve. We kept property exposure in line with the benchmark.
IAC Meeting - 13/06/2017 / Governed Portfolio 4 outperformed benchmark over 5 years to end of March 2017. The existing tactical position applied 11/05/2017 continues. No change required to benchmark asset allocation.
11/05/2017 / With global growth indicators peaking, markets could encounter some volatility over the summer. We have maintained a small overweight in equities and have increased exposure to global high yield as a lower risk way of getting corporate exposure. Within equities, we favour Europe on the back of improved growth indicators and a more stable political outlook. Recent signs of weaker economic activity in China led us to trim back our exposure to commodities.
20/04/2017 / We have reduced our exposure to equities ahead of the typically volatile summer months and spread the proceeds across global high yield, property, gilts and cash. We have also added to our holdings in Commodities in order to retain some exposure to a strengthening global economy. The overall change seeks to reduce risk within the portfolio at a time of heightened geopolitical risk.
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