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GOVERNED PORTFOLIO 7
ANNUAL REVIEW
Introduction
This document provides a rolling annual review of Governed Portfolio 7 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 adventurous or adventurous risk attitude over a long time period.
Ongoing governance
Governed Portfolio 7 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 tacticalallocationBenchmark asset allocation
/ 80.40% / Equities / 14.60% / Property
/ 5.00% / Commodities
Tactical position as at 16/08/2018.
Performance to 30/06/2018
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 Change30/06/2017 / 30/06/2016 / 30/06/2015 / 30/06/2014 / 30/06/2013 / Compound Annual
Portfolio Name / 30/06/2018 / 30/06/2017 / 30/06/2016 / 30/06/2015 / 30/06/2014 / Growth Rate (%)
%Chg / %Chg / %Chg / %Chg / %Chg / 3 Years / 5 Years
Governed Portfolio 7 / 7.99 / 17.49 / 3.66 / 8.33 / 11.46 / 9.55 / 9.69
Composite benchmark / 8.06 / 15.95 / 6.35 / 6.38 / 11.05 / 10.03 / 9.49
Difference / -0.07 / 1.54 / -2.69 / 1.95 / 0.41 / -0.48 / 0.20
Source: Lipper, bid to bid, as at 30.06.2018, Royal London, as at 30.06.2018. 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.
Performance to 31/07/2018
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 Change31/07/2017 / 31/07/2016 / 31/07/2015 / 31/07/2014 / 31/07/2013 / Compound Annual
Portfolio Name / 31/07/2018 / 31/07/2017 / 31/07/2016 / 31/07/2015 / 31/07/2014 / Growth Rate (%)
%Chg / %Chg / %Chg / %Chg / %Chg / 3 Years / 5 Years
Governed Portfolio 7 / 8.49 / 13.20 / 6.85 / 9.53 / 6.87 / 9.47 / 8.96
Composite benchmark / 9.11 / 13.98 / 7.29 / 8.40 / 5.81 / 10.08 / 8.88
Difference / -0.62 / -0.78 / -0.44 / 1.13 / 1.06 / -0.61 / 0.08
Source: Lipper, bid to bid, as at 31.07.2018, Royal London, as at 31.07.2018. 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 7 targets a specific level of volatility which is shown on the table below.
VolatilityEstimated (%) / Target (%) / Upper bound (%) / Lower bound (%)
Governed Portfolio 7 / 13.5 / 14.5 / 16.0 / 13.1
Source: Investment Advisory Committee Report, data as at 30.06.2018. 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 7 between 13.1% and 16.0% 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 / DetailsIAC Meeting – 28/08/2018 / Governed Portfolio 7 outperformed benchmark over 5 years to end of June 2018. The existing tactical position applied 16/08/2018 continues. No change required to benchmark asset allocation.
16/08/2018 / A currency crisis in Turkey has rattled global stock markets. Before the selloff, our multi asset funds were already positioned relatively defensively, with the smallest overweight in equities since 2012 and favouring the US over emerging markets. We continued to reduce exposures to stocks and commodities, bringing the latter allocation into line with the benchmark. The proceeds were moved into property. We will look to add back to stocks in coming months. We are modestly overweight global equities.
12/07/2018 / Our Investment Clock may enter its ‘Stagflation’ phase during summer, as inflation tracks slightly higher while global growth cools, especially outside the US. Stocks are flat year-to-date after a burst of volatility that marked a global growth peak; a deteriorating economic backdrop and talk of trade wars signal further volatility. We continued to take profits on our equities position, where the overweight is the lowest since 2012, and reduced our overweight commodities allocation; the proceeds were moved into property. We are modestly overweight global equities and commodities.
07/06/2018 / Our Investment Clock remains in its ‘Overheat’ phase, with greater risk of inflation, although there are indications of economic weakness outside the US. We expect stocks to trade in a range over summer; investor sentiment, having been very fearful in February, is now neutral. After capitalising on weak markets in the first quarter to increase equity exposures, we have been taking profits on our overweight position as prices recovered, moving the proceeds into property. Longer term, we remain positive on stocks but more cautious on government bonds. We are moderately overweight global equities and commodities.
IAC Meeting – 05/06/2018 / Governed Portfolio 7 outperformed benchmark over 5 years to end of March 2018. The existing tactical position applied 10/05/2018 continues. No change required to benchmark asset allocation.
10/05/2018 / Our Investment Clock remains in its ‘Overheat’ phase, with increased risk of inflation, although the global economy is showing some signs of slowing. With investor sentiment staying neutral, we have taken further profits on the extra equities purchases made during the market lows; we also reduced the overweight allocation to commodities. Proceeds of these sales were moved into property. Longer term, we remain positive on stocks and are overweight global equities and commodities.
19/04/2018 / Our Investment Clock remains in the early stages of its ‘Overheat’ phase, with a robust worldwide economic expansion and increased risk of inflation. Following considerable volatility in markets in recent weeks, portfolio activity focused on risk management. We have increased the allocation to property, albeit the exposure remains an underweight; this was funded by reducing our overweight holding of equities. With economies continuing to expand and inflation remaining benign, we are overweight global equities and commodities.
08/03/2018 / 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. 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 7 outperformed benchmark over 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 property. 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 property. 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 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 7 outperformed benchmark over 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, where we remain overweight. We have added to commodities at the margin, while trimming the exposure to property.
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. 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. Property exposure was maintained slightly underweight versus the benchmark.
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