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Investment  >  Advisory Committee  >  Meeting Summaries  >  Meeting Summary for 18 April 2005

Meeting Summary for 18 April 2005

Attended: Mike Yardley, Brian Duffin, Ewan Smith, Andy Carter, Andrew Barrie

The meeting of the Royal London Investment Advisory Committee covering the 1st quarter of 2005 results, took place on Monday, 18 April 2005.

Review of benchmarks

Andrew Barrie presented a paper from Barrie & Hibbert reviewing the calibration of the key parameters used in the financial modelling. A number of differences were noted between the current best estimates and the assumptions used in the modelling, notably:

• Barrie & Hibbert assume a higher expected return on property
• Barrie & Hibbert assume a lower yield pick up on corporate bonds.

Andrew Barrie confirmed that these differences would not lead to a material change in benchmark weightings. Therefore, it was agreed that no change should be made to the benchmarks.

Review of performance

Andy Carter presented a report from RLAM reviewing the performance of the managed funds and their component sub-funds against their benchmarks over the first quarter of 2005.

The various equity funds have performed well over the period, particularly overseas equities where stock selection has made a significant contribution to a positive performance against the benchmark. The only disappointing performance was in Europe which continues to be held back by an underweight stance in smaller and mid cap stocks.

Although the Property fund underperformed its benchmark, this can be attributed to the sudden change by the Government in its stance on Stamp Duty due for properties held in "development areas". This is fully allowed for in the fund return but not the benchmark return calculation.

The bond funds performed broadly in line with their benchmarks over the quarter.

The table below sets out the performance analysis in respect of the 3 managed funds and how this is made up between asset allocation and stock selection positions.

	Performance vs Benchmark	Asset Allocation	Stock Selection
Defensive Managed Pension fund	+0.06%	+0.09%	-0.03%
Managed Pension fund	+0.44%	+0.20%	+0.24%
Adventurous Managed Pension Fund	+0.18%	-0.03%	+0.21%

Source: Royal London Asset Management, figures for Quarter 1 2005. 

It was noted that the level of risk being taken within the 3 managed funds remains low and well within the maximum risk budgets recommended by the Advisory Committee.

Managed fund portfolio weightings for next quarter

Andy Carter outlined the intended distributions of the 3 managed funds during Quarter 2 2005. 

Defensive Managed Pension fund

Defensive Managed Pension fund	Benchmark	RLAM	Relative
Equities - UK	15.13	15.13	-
Overseas	12.37	13.37	+1.0
	27.50	28.50	+1.0
Fixed Interest Gilts	Nil	Nil	-
Corporate Bonds	30.00	31.00	+1.0
Index Linked Gilts	25.00	23.00	-2.0
Property	17.50	17.50	-
	100.00	100.00

Managed Pension fund

	Benchmark	RLAM	Relative
Equities - UK	30.25	30.25	-
Overseas	24.75	25.75	+1.0
	55.00	56.00	+1.0
Fixed Interest Gilts	Nil	Nil	-
Corporate Bonds	17.50	18.50	+1.0
Index Linked Gilts	10.00	8.00	-2.0
Property	17.50	17.50	-
	100.00	100.00

Adventurous Managed Pension Fund

	Benchmark	RLAM	Relative
Equities - UK	41.25	40.77	-0.48
Overseas	33.75	34.73	+0.98
	75.00	75.50	+0.50
Fixed Interest Gilts	Nil	Nil	-
Corporate Bonds	7.50	7.00	-0.50
Index Linked Gilts	Nil	Nil	-
Property	17.50	17.50	-
	100.00	100.00

Within the overseas equity portfolios, RLAM continue to be underweight in the US relative to Europe and Far East markets.

It was noted that the Managed Pension fund continues to be significantly underweight in property (11% against a benchmark of 17.5%). Further purchases are planned to raise the weighting to around 15.0%, however RLAM believe that it would not be prudent to chase further purchases of property at this stage in the pricing cycle. It is likely that the residual balance will continue to be invested in UK Equities.

RLAM continue to believe that the major asset classes remain reasonably valued; equities continue to look attractively priced relative to bonds but it is unlikely that this will correct itself in the short term. Hence RLAM believe that only limited asset allocation risk should be taken and that it is likely that the levels of risk being taken will continue to be low relative to the maximum risk budgets recommended by the Advisory Committee.