Investment Update

Fund return: year to 31 March 2022 (%)

Sector Fund value as at 31 March 2022 (£m) Fund return: year to 31 March 2022 (%) Fund return: three years to 31 March 2022 (annualised) (%)
Sterling Corporate Bonds 330.9 -4.9 +0.2
Multi-Asset Credit 392.1 0.0 +4.9
Cash (including foreign currency) 27.4 +1.2 +0.8
Passive equities 1,709.0 +11.0 +10.4
Global High Alpha Equities 295.7 +9.6 +11.6
Global smaller companies equities 289.1 +2.0
Emerging market equities 249.5 -11.4 +3.4
Sustainable equities 258.2 +8.2
Low volatility equities 391.1 +16.1 +8.7
Diversifying Returns Funds 502.4 +7.3 +3.2
Property 508.2 +18.7 +7.7
Infrastructure 324.6 +5.0 +5.1
Private equity 25.4 +24.0
Private debt 108.4 +13.2 +8.0
Total fund 5,412.0 +7.7 +7.5

The Fund value as at 31 March 2022 stood at £5,412.0 million, a decrease of around £175 million over the quarter, but an increase of £345 million over the year.

Key issues over the quarter

  • Investment Grade bonds delivered a negative return over the year, all arising from the last quarter, as interest rate rises reduced the value of the bonds held. The annual return combines the return of the Lazard global bonds mandate over the quarter to June with the performance of the Brunel Sterling Corporate Bonds portfolio following transition.
  • Multi-Asset Credit which represents the riskier end of the listed fixed income market, combines the Brunel performance with that of the Wellington mandate up to transition. The benchmark is a cash plus benchmark, so will always be positive, and in a period of negative returns will always be difficult to achieve.
  • Equities fell over the last quarter, but showed a positive return for the year. The impact of the Russian invasion of Ukraine had a greater impact on “growth” companies, such as the big tech companies, than on “value” stocks,such as the energy sector and consumer essentials. This explains the below benchmark performance of the Global High Alpha, Smaller Companies and Sustainable Equities portfolios, and the above benchmark performance of Low Volatility Equities.
  • The Brunel Diversifying Returns Fund achieved a positive return over the last quarter, demonstrating its value during times of market stress. This resulted in a positive above benchmark return over the year.
  • Infrastructure returns have been mixed. The benchmark seeks a return above inflation which has increased significantly, and the fund returns have not kept pace. Valuations are lagged in many cases, and where revenues are linked to inflation there is likely to be a boost over the next 6 months. It should also be noted that several of the Brunel infrastructure investments are at an early stage and need a longer timeframe to deliver the high positive returns that we would expect.

Asset allocation

The current asset allocation, compared to the 2021/22 target allocation, is shown in the table below:

Header label Target allocation (%) Target allocation (%)
Fixed interest and cash 15.0 13.8
Equities 58.0 59.0
Alternatives/Other 27.0 27.2
  • All asset classes were within 1.5% of the target allocation. This followed significant drawdowns of private market commitments during the quarter, funded from equities. The private markets allocations were also less impacted than equities by the geo-political concerns following Russia’s invasion of Ukraine.
  • At the February meeting of the Committee, it was agreed to implement changes to the asset allocation:
    • (a) to increase the allocation to Multi-Asset Credit up to 12%
    • (b) to increase the allocation to Sustainable Equities up to 10%
    • (c) to fund these by removing the allocation to low volatility equities and reducing the allocation to passive equities.

These changes have been implemented in three phases during April, May and June, and will be reflected in the end of June asset allocation. The updated strategic asset allocation is set out in the revised Investment strategy statement that is the subject of a separate report on the agenda for
this meeting.