Agenda item

Report attached.

Officers advised the Committee that the net return on the Fund’s investments for the quarter to 30 June 2013 was -0.4%. This represented an out performance of 1.0% against the combined tactical benchmark and an outperformance of 5.0% against the strategic benchmark.

The overall net return for the year to 30 June 2013 was 16.6%. This represented an out performance of 3.3% against the annual tactical combined benchmark and an out performance of 18.7% against the annual strategic benchmark.

1.    Hymans Robertson (HR)

HR advised that perhaps the most significant event during the quarter came in late May, when the US central bank hinted it may begin scaling back its programme of asset purchases by the end of the year. This raised immediate concerns that economic activity, which the programme was designed to support in the first instance, might be adversely affected. Signs of a potential credit crunch in China, reduced forecasts for economic growth in the Eurozone and an uncertain outlook in the UK added to the sense of unease. Equity markets responded with sharp falls, particularly in Asia Pacific and Emerging Markets, offsetting gains earlier in the quarter. The FTSE All-World index was flat over the quarter. In the UK, the FTSE All Share index returned -1.66% over the quarter.

Bond investors interpreted the prospect of reduced assets purchases in the US with some caution. Bond prices fell (yields rose), in all major markets. The yield on the 10 year US Treasury, a widely followed benchmark, reached its highest level in more than a year.

In the UK, the Chancellor of the Exchequer presented his spending review in June against a background of intense debate over the efficacy of austerity. Further savings of £11.5bn were announced. With an eye beyond the immediate difficulties, the Chancellor also announced funding of £100bn for infrastructure projects between now and the end of the decade.

Key events during the quarter were:

Global Economy

·         The Governor of the Bank of England stated the UK economy was showing signs of renewed vigour; the UK ‘funding for lending’ scheme was extended, despite poor initial take up;

·         Rating agency S&P raised its outlook for the US economy but reiterated concerns about the high level of debt;

·         The European Commission allowed some member states to slow the pace of austerity measures;

·         Short-term interest rates were unchanged in UK, US and Japan but were cut in the Eurozone, from 0.75% to 0.50%;

·         The Eurozone reported a fourth consecutive quarter of economic contraction.

Equities

·         The best performing sectors relative to the ‘All World’ Index were Health Care (+3.0%) and Telecommunications (+2.9%); the worst were Basic Materials (-9.8%) and Oil & Gas (-3.1%);

·         The Dow Jones equity index (US) reached a record high (15,000) in May.

Bonds

·         UK government bond prices fell (yields rose), but outperformed their overseas counterparts;

·         UK index linked issues (-6.5%) underperformed fixed interest issues (-3.8%).

The Committee were given details of the performance of the Fund managers, a summary of which is given in the Exempt minutes.

State Street, Baillie Gifford and Ruffer continue to perform as expected.

The news on the UBS Triton Fund was much more positive. The fund had received new investment from three institutional investors which with requests from clients to withdraw from the redemption queue, meant that the notice of liquidation had been revoked.  The portfolio was in a better shape than 12 months previously with many problem properties having been sold.

2.    Standard Life (SL)

Both David Cumming and Dale MacLennon attended to deliver the presentation on Standard Life’s behalf. Standard Life had improved performance over the last few months and, at the end of June the portfolio was valued at £86.85m, at the end of July at £94.2m and at the time of the meeting approx. £97m.

They advised that in quarter 2 they had outperformed the benchmark by 3%, and over the last 12 months by 7.8%. However, over the last 5 years they had underperformed by -0.3 % and since inception by -0.4%.

We have noted the report and thanked David and Dale for their presentation.

3.    Royal London (RL)

Paul Rayner and Fraser Chisholm attended on behalf of Royal London to update the Committee on the current position with their mandate. Although quarter 2 had been a difficult time for the Bond market, and the value of the portfolio had fallen Royal London had continued to outperform the benchmark.  Quarter 3 had seen the portfolio regain some value.

Over the last 12 months they had outperformed the benchmark by 2.09%, over 5 years by 1.29% and since inception outperformed by 0.63% Their target is to outperform the benchmark by 0.75% so they were slightly behind target since inception.

The Committee continue to retain confidence in Royal London and noted the report and thanked Paul and Fraser for their presentation.