Agenda item

To consider the attached report.

 

Officers advised the Committee that the net return on the Fund’s investments for the quarter to 30 September, 2013 was 3.3%. This represented an out performance of 1.1% against the combined tactical benchmark and an out performance of 1.2% against the strategic benchmark.

 

The overall net return for the year to 30 September, 2013 was 16.1%. This represented an out performance of 3.7% against the annual tactical combined benchmark and an out performance of 17.9% against the annual strategic benchmark.

 

1.    Hymans Robertson (HR)

 

HR advised that the quarter contained a mix of positive economic news and more nuanced financial events. The Eurozone had emerged from recession, although there remained a wide divergence in the performance of individual members. In the UK, data published in July indicated strong economic growth, prompting the Chancellor of the Exchequer to comment that the economy was ‘turning a corner’ and to cite ‘signs of a balanced, broad based and sustainable recovery.’ Positive economic developments were also evident in the US and, to a lesser extent, in Japan.

 

Notwithstanding positive economic data, action by central banks tended to reflect a more cautious attitude. Short-term interest rates in the UK, Eurozone and US were held at record lows. In the US, the Federal reserve indicated there would be no immediate unwinding of monetary support (currently $85bn a month) a step back in tone from the preceding quarter. In addition, both UK and European central banks provided forward guidance on monetary policy for the first time. The underlying message from the major central banks was, and remained, that economic conditions, whilst improving, still needed very careful management.

 

Global ten year bond yields rose (Prices fell) but then stabilised. At the end of the quarter, investors were unsettled by concerns that the US might not renew its debt ceiling by the mid October deadline.

 

The key events during the quarter were:

 

Global Economy

 

·         Forecasts for UK economic growth were revised upwards by the Bank of England and IMF;

·         Global economic growth forecasts were revised down by the IMF;

·         China announced a series of measures to boost economic growth;

·         Short-term interest rates were unchanged in the UK, US and Eurozone; and

·         The Eurozone economic recovery from recession, after four consecutive quarters of economic contraction.

 

Equities

 

·         The best performing sectors relative t the ‘All World’ Index were Basic Materials (+3.9%) and Industrials (+2.8%); the worst were Utilities (-3.6%) and Consumer Goods (-2.2%);

·         Barclays Bank announced a £5bn rights issue (and a £2bn bond issue) to meet new capital requirements;

·         Vodaphone sold its 45% stake in Verizon for $130bn (one of the largest deals in corporate history).

 

Bonds and Currencies

 

·         UK government bonds (All Stocks) returned +0.5%;

·         Corporate issues outperformed government counterparts by a comfortable margin; and

·         Sterling strengthened against all major currencies.

 

The Committee were given details of the performance of the Fund Managers, a summary of which is given in the Exempt minutes. State Street Global Advisors, Baillie Gifford and UBS Triton attended the meeting and presented details of their performance in the third quarter of 2013.

 

Standard Life had performed well in the quarter producing a return of 10.2% (net of fees). Over the past year the fund had performed well outperforming the benchmark, with a relative return of 10%. However, in line with our decision to invest in dynamic, multi asset mandates, we have now disinvested from Standard Life. The funds have now all been transferred to Barings Dynamic Asset Allocation Fund.

 

 

Ruffer continued to perform as expected, returning 11.3% over the past 12 months.

 

Royal London had enjoyed similar success outperforming the benchmark by 0.6% for the quarter and outperforming the benchmark over the last 12 months, three years and since inception.

 

2.    Baillie Gifford (BG)

 

James Mowat and Fiona MacLeod attended the meeting on behalf of Baillie Gifford to discuss performance in quarter 3. Performance since inception had been good with the fund (Global Alpha Strategy) outperforming the benchmark by 4%.

 

The Committee were advised that the transition of funds to the new mandate the Baillie Gifford Diversified Growth Fund had proceeded smoothly and the £70m had been received in three instalments.  These funds had been disinvested from State Street, £50m from the global equity portfolio and £20m from the Sterling Liquidity Fund.

 

The presentation was noted and the Chairman thanked James and Fiona for their presentation.

 

3.    UBS Triton Fund (UBS)

 

Howard Meaney (HM) (Head of Global Real Estate attended the meeting to deliver a presentation on quarter 3 performance. Since the last meeting with UBS there had been significant inward investment of £197.5m from 3 UK Pension Funds.

 

The fund currently comprised 32 assets with a net asset value of £594.4m. The fund was being repositioned through sales and purchases, and there was no redemption queue.

 

HM indicated he expected the fund to return 9.5% p.a. The fund had £45m to invest in new assets and some poor performing assets were to be sold.

 

The Committee welcomed the turnaround in fortune for this fund and thanked Howard for his presentation.

 

4.    State Street Global Advisors (SSGA)

 

Kevin Cullen (Local Authority Relationship Manager) and Ana Paula Harris (Portfolio Strategist) attended the meeting to deliver a presentation on behalf of SSGA.

 

The Pension Fund monies were invested in a pooled structure to give the best return with the lowest cost.  Since inception the fund had delivered as expected giving a return of -0.02% as compared to the FTSE* All World Index.

 

In response to a question from the Committee SSGA advised that whilst the government’s proposals for larger /joint pension funds would lead to savings they would not be of the size envisaged by the Government.

 

The Committee thanked Kevin and Ana for their contribution.