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Summary of Investment Governance meeting held on 21 May 2009

Our independent Investment Advisory Committee (IAC) meets every three months to review suitability of asset allocations. The following are the key points from the meeting held on 21 May 2009:

Performance during deflation

In depth

Download the following PDF documents for more information:

A detailed review of how the Governed Portfolios, Managed Funds and the four Managed Strategies might perform should we enter a period of deflation was undertaken on 16 April 2009.

Reassuringly, the current benchmarks were assessed as being broadly still reasonable even if we entered a temporary period of deflation.

The conclusion was that the benchmarks should continue to hold 'real' assets, as over the medium term, inflation pressure will emerge.

The IAC concluded that the current high levels of equity volatility being experienced in financial markets are likely to be temporary.

The  appropriate response is to let this unwind naturally rather than to change the benchmarks. The group recommended that only the Cautious Long Managed Strategy benchmark should change as it was being impacted not only by this equity volatility spike but also by an increase in uncertainty as to the path of long term inflation.

Review of benchmarks and current asset allocations

Tactical review

Our Governed Portfolios benefit from a tactical review which means changes can be made in the short term to exploit current market conditions without moving away from the benefit of long term asset modelling.

During Q2, a tactical change was advised. Robert Talbut, Chief Investment Officer of Royal London Asset Management, became more favourable towards property and less favourable towards index-linked.  As a result the tactical positioning is now:

  • Equities: Overweight
  • Corporate Bonds: Overweight
  • Index-linked Bonds: Underweight
  • Property: Neutral

Benchmarks

The IAC agreed that the current benchmarks continue to be appropriate. No changes are required with the exception of the Cautious Long Term Managed Strategy.  As explained above market conditions mean that the benchmark for this strategy should be changed as follows:

Asset type

Current Benchmark

New Benchmark

Equities

27.5%

22.5%

Corporate Bonds (15 years)

30.0%

27.5%

Index Linked (15 years)

25.0%

32.5%

Property

17.5%

17.5%

Total

100.0%

100.0%

Advisers with clients in this strategy will receive a letter in the near future informing them of this change. Clients will also receive letters explaining the change to their plan.

Funds under review

The following funds are under review by the IAC:

Funds managed by RLAM

  • Fixed Interest pension fund
  • Life Property fund
  • Duration bond funds

Matrix funds

  • JP Morgan Japan
  • Invesco Perpetual UK Growth
  • Invesco Perpetual International Equity
  • Artemis European 
  • JP Morgan Premier Equity Growth
  • Investec American
  • Schroder UK Mid 250

Other external managed funds

  • Société Générale funds
  • Fidelity Special Situations
  • Schroder Managed Balanced
  • UBS Managed
  • UBS UK Equity

The next IAC quarterly meeting will be held Tuesday 25 August 2009.

Further information

For more details about how these changes may impact you or your clients, please speak to your usual Scottish Life contact or call us on 0845 60 40 800.


For professional advisers only