Fund values and investment return
| Sector | Fund value as at 30 June 2024 (£m) |
Fund return: 1 April to 30 June 2024 (%) |
Fund return: three years to 30 June 2024 (annualised) (%) |
|---|---|---|---|
| Investment Grade Bonds | 432.8 | +0.1 | -2.9 |
| Multi-Asset Credit | 723.0 | +1.9 | +2.6 |
| Cash (including foreign currency) | 150.4 | +1.0 | +2.7 |
| Passive Equities | 1,590.0 | +3.1 | +8.9 |
| Global High Alpha Equities | 361.8 | +1.1 | +6.8 |
| Global Smaller Companies Equities | 302.9 | -1.8 | +0.3 |
| Emerging Market Equities | 297.0 | +5.7 | -4.1 |
| Sustainable Equities | 611.8 | -0.5 | +3.5 |
| Diversifying Returns Funds | 138.7 | -0.5 | +2.8 |
| UK Property | 360.5 | -0.1 | +0.3 |
| International Property | 98.1 | +0.8 | +3.5 |
| Infrastructure | 553.9 | +1.8 | +7.1 |
| Private Equity | 94.6 | +4.6 | +9.4 |
| Private Debt | 203.1 | +1.4 | +10.6 |
| Local Impact Portfolio | 66.0 | -0.3 | – |
| Total fund | 5,984.6 | +1.6 | +4.5 |
Key Points
- The Fund value as at 30 June 2024 stood at £5,984.6 million, an increase of £70 million over the last quarter. .
- Bond markets were impacted by volatility of market views on how quickly interest rates would start to fall. The Sterling Corporate Bonds portfolio was broadly flat as the market reduced their expectation on the speed of rate cuts from the Bank of England. The Multi-Asset Credit portfolio delivered a better absolute return due to the broader range of credit assets, with floating rate assets performing the best. With Sterling interest rates remaining elevated, the return was below benchmark, but compared well with the peer group of other multi-asset credit funds.
- The active equity portfolios had another mixed quarter. The Emerging Markets portfolio was the best performer, both in absolute and relative terms, with good stock selection being the major contributor to the above benchmark performance. The Smaller Companies portfolio also benefited from good stock selection, but still delivered a negative return, as sticky inflation was a headwind for smaller companies that are more sensitive to higher interest rates. Global market performance over the quarter was again driven by the big technology stocks. The Global High Alpha and Sustainable Equities portfolios were below benchmark due to their collective underweight to the big tech names.
- The UK Property portfolio was broadly flat, although the market showed some signs of moving back towards positive performance after a difficult couple of years. International Property benefitted from the currency hedging in place against an unhedged benchmark.
- Property aside, the private market portfolios all showed positive performance. It should be noted that as valuations for private market assets tend not to be available until 2-3 months after the quarter end, the returns shown are more eflective of market conditions in the first quarter of the calendar year up to March.
Overall Asset Allocation
The current asset allocation, compared to the 2024/25 target asset allocation, is shown in the table below:
| Header label | Target allocation (%) | Actual allocation (%) |
|---|---|---|
| Fixed interest and cash | 20.0 | 21.8 |
| Equities | 50.0 | 52.9 |
| Alternatives/Other | 30.0 | 25.3 |
Key points to note about Asset Allocation
- Sterling Corporate Bonds and Multi-Asset Credit are both reasonably close to the target asset allocation. As agreed by the Committee in June 2023, the level of cash being held is currently above the 1% target.
- The Equity allocation was reduced by £50 million during June, but remains overweight against target.
- The main underweight allocation continues to be that to Alternatives/Other. The target weightings now reflect the agreed medium/long term targets and therefore the target for Diversifying Returns Funds is shown as zero. However, there is no quick fix to increasing the allocations to the private markets asset classes up to target as we are dependant on the funds concerned calling the significant commitments that have been made. Therefore, unless other options are considered the current allocation to Diversifying Returns Funds is likely to remain for some time.
- The Property allocation has struggled over the last two years, and is now 2.4% below target (UK / International combined). Brunel have made commitments to a couple of property funds as part of bringing our portfolio in line with their model portfolio, and are looking to make purchases on the secondary market to bring the allocation closer
to target. - Significant commitments have been made to bring private debt and private equity up to the target level, but these will still take some time to be fully drawn.
- The Local Impact Portfolio will also take some time to build up. Over the last quarter the first call on our investment in the Gresham Residential Fund has been drawn, and we are expecting the first call on the Octopus Affordable Housing Fund by the end of September.
- In summary, Equities continued to be overweight by 2.9% and the private market allocations continued to be underweight. Given the potential for further volatility in equity markets, it was agreed that £60 million be redeemed from the Passive Equity allocation, and held as cash pending further private market drawdowns. This will further increase the overweight to cash.