Investment Update

Fund return: year to 31 March 2021 (%)

The Fund value as at 31^st March 2020 stood at £5,035 million, an increase of around £110 million over the quarter, and £1,025 million over the year.

Key issues over the quarter

• Global bonds delivered a small negative return over the year, having delivered good positive returns in March 2020 when the rest of the market collapsed. Despite the negative return, performance was still better than the benchmark.
• Multi-Sector Credit which represents the riskier end of the listed fixed income market, delivered a good positive return, ahead of benchmark. In general, riskier assets performed well during 2020/21.
• Equities have delivered good positive returns over the financial year, as markets rebounded following the falls of the quarter to March 2020, and were then buoyed up by the optimism resulting from the vaccination programme.
• Within the equity allocations, active global equities have performed above benchmark, with significant out-performance from the Brunel Global High Alpha portfolio. The active global equities return also includes the performance of the specialist funds up to September when they were transitioned to Brunel’s Global Smaller Companies portfolio.
• The returns of the Global Smaller Companies and Sustainable Equities allocations are only part year returns, as they were only launched in September/October 2020. The performance of the RWC Fund has contributed to the total Global Smaller Companies return. The Sustainable Equities performance was below benchmark, as “value” stocks such as oil and financial companies, which would not be seen as “sustainable” stocks rallied over the last quarter driving the returns of the wider market.
• The Emerging Markets portfolio has also had high above benchmark returns.
• The Low Volatility Equities portfolio has performed well below the benchmark. This is to be expected in a rising market, as low volatility equities are expected to provide more stable returns. Although the performance against the broader global equity index appears disappointing, the portfolio has performed in line with the more comparable MSCI Minimum Volatility Index. This gives some comfort that the managers’ strategy is in line with the market proxy, despite the fact that the market conditions witnessed over the past year have not been favourable to a low-volatility investment strategy.
• The diversified growth funds have recovered with a +14.9% return over the year, but this has not made up for the poor performance in the quarter to 31 March. Performance over the last full year remains negative. The DGFs transitioned across to Brunel’s Diversifying Returns Fund during August/September, and the performance reported is a combination of the previous managers (Barings and Baillie Gifford) and the Brunel portfolio.
• Property, infrastructure and private debt have all had weaker returns over the year. While equity markets fell in March 2020 and then bounced back, the impact of the pandemic on the private markets had less initial impact due to lagged valuation cycles, but has resulted in lower, but still positive, returns in the current financial year.

Asset allocation

The current asset allocation, compared to the 2020/21 target allocation, is shown in the table below:

• The dramatic recovery in equity markets has meant that equities are now 5% above the target weighting. This has increased from around 3.5% above target as at the end of December when it was decided to take no action to rebalance. However, the overweight has grown to the extent that it would now be prudent to trim the allocation.
• The global bonds allocation was 1% underweight at the end of March. Subsequently this has been transitioned to the Brunel Sterling Corporate Bonds portfolio. It is proposed to top up the allocation by £50 million to bring it up to the target weight, funded from the equity overweight.
• The major underweight area is the allocation to alternatives/other, and within that the allocations to the private markets headings. For the private markets allocations, we are dependent on committed funds being called on by Brunel for their underlying investments, so it is not possible simply to reallocate funds quickly.