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Investment  >  Advisory Committee  >  Meeting Summaries  >  Meeting Summary for 26 July 2005

Meeting Summary for 26 July 2005

Attended: Mike Yardley, Brian Duffin, Ewan Smith, Andy Carter, Andrew Barrie and David Rose
Apologies: Robert Talbut

The meeting of the Royal London Investment Advisory Committee covering the results for the 2nd quarter of 2005, took place on Tuesday, 26 July 2005.

Review of previous minutes

It was confirmed that there was no intention to restrict the corporate bond funds to any specific debt rating; the purpose of these funds is to capture the higher risk/reward investment profile of corporate debt relative to government debt. As the modelling currently assumes that the default risk was consistent with an S&P rating of A or better, the additional risk will be captured as part of the risk budget.

Andy Carter stated that underperformance of the Property fund during Quarter 1 was not due to an inconsistency in stamp duty assumptions between the fund and the benchmark as stated in the last minutes. It was simply due to the fact that the fund is suffering from an initial drag on performance due to the large increase in value. Specifically, the offer price valuation of a newly purchased property tends to be valued below the actual purchase price.

Review of performance

Andy Carter and David Rose presented a report from RLAM reviewing the performance of the building block and managed funds against their benchmarks over the 2nd quarter of 2005.

It was confirmed the restructuring of the funds in line with the benchmarks has now been completed. It was agreed that the benchmark returns should be recalculated to reflect the phased implementation.

The equity building block fund (Global Managed fund) underperformed over the quarter largely due to an overweight position in Far Eastern markets. The performance of the UK Equity fund continues to be good.

The performance of the bond funds was broadly in line with the benchmarks except the Long (15yr+) Index Linked fund where the duration of the bonds held was slightly out of line with the benchmark. It was noted that the remit of these funds is to remain closely matched to the benchmark.

The Property fund underperformed significantly over the quarter due to the substantial inflows of new money. The initial re-alignment of assets is now complete and it is expected that this feature will not drag performance from this point forwards.

Past performance for those funds mentioned with greater than 12-month performance have been shown in a table at the end of the minutes.

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 fund	-0.27%	-0.04%	-0.23%
Managed fund	-0.49%	-0.08%	-0.41%
Adventurous Managed fund	-1.01%	-0.42%	-0.59%

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 over the next quarter.


Defensive Managed fund

	Benchmark	RLAM	Relative
Equities - UK              - Overseas	15.13 12.37 27.50	16.20 13.80 30.00	+1.07 +1.43 +2.50
Fixed interest gilts	Nil	Nil	Nil
Corporate bonds	30.00	31.00	+1.00
Index linked gilts	25.00	23.00	-2.00
Property	17.50	16.00	-1.50
	100.00	100.00

Managed fund

	Benchmark	RLAM	Relative
Equities - UK              - Overseas	30.25 24.75 55.00	31.05 26.45 57.50	+0.80 +1.70 +2.50
Fixed interest gilts	Nil	Nil	Nil
Corporate bonds	17.50	18.50	+1.00
Index linked gilts	10.00	8.00	-2.00
Property	17.50	16.00	-1.50
	100.00	100.00

Adventurous Managed fund

	Benchmark	RLAM	Relative
Equities - UK              - Overseas	41.25 33.75 75.00	41.58 35.42 77.00	+0.33 +1.67 +2.00
Fixed interest gilts	Nil	Nil	Nil
Corporate bonds	7.50	7.00	-0.50
Index linked gilts	Nil	Nil	Nil
Property	17.50	16.00	-1.50
	100.00	100.00

RLAM continue to favour equities relative to both bonds and property. They continue to be underweight in the US relative to Europe and Far East markets. RLAM have tempered their view on property although still expecting healthy returns in 2005 and 2006 from that asset class.

However, there are no significant asset allocation positions relative to the benchmarks as RLAM continue to believe that the major asset classes remain reasonably valued.

--------------------------------------

Fund and benchmark performance table

	31/03/05 to 30/06/05	31/08/04 to 31/08/05	29/08/03 to 31/08/04	30/08/02 to 29/08/03	31/08/01 to 30/08/02	31/08/00 to 31/08/01
	pgr%	pgr%	pgr%	pgr%	pgr%	pgr%
Global Managed fund	4.81	18.74	1.25	4.80	-19.22	-26.20
Composite Benchmark: 55% FTSE All Share Index, 45% FTSE World ex UK Index	5.53	20.94	5.55	6.44	-20.42	-21.55
UK Equity fund	4.59	21.69	7.87	2.07	-19.04	-18.42
FTSE All Share Index	4.75	22.86	9.70	3.60	-19.49	-18.09
Property fund	3.43	15.68	13.84	7.78	7.13	10.24
IPD UK All Property Monthly Index	4.23	14.71	15.37	8.87	8.28	6.57

pgr% is the percentage change in price.
Source: Lipper as at 31.08.2005, Scottish Life as at 31.08.2005.  All performance figures, including the figures shown for the growth in benchmarks, have been calculated net of the annual management charge for each fund (1%). Past performance is not a guide to the future. Prices can go down as well as up. Investment returns may fluctuate and are not guaranteed.

The past performance information shown may not be current.  Up to date past performance information for these funds can be obtained from Scottish Life's Monthly Performance Statistics.