Agenda item

To consider the attached report.

Officers advised the Committee that the net return on the Fund’s investments for the quarter to 31 December, 2013 was 2.7%. This represented an under performance of 0.7% against the combined tactical benchmark and an out performance of 3.7% against the strategic benchmark.

The overall net return for the year to 31 December, 2013 was 15.8%. This represented an out performance of 2.3% against the annual tactical combined benchmark and an out performance of 19.2% against the annual strategic benchmark.

1.    Hymans Robertson (HR)

Market Summary

·         Signs of a domestic and global economic recovery continued over the quarter, prompting the Bank of England to upgrade its economic forecast for the UK.

·         Global equity markets had performed strongly over the quarter as investor sentiment improved and markets reacted to news of the Fed’s decision to commence tapering. In Sterling terms, the US was the best region for equities (7.9%) followed by North America (7.5%), Europe ex-UK (5.8%) and the UK (5.5%). Returns on the Japanese market were buoyant at 9.7% over the quarter, but remained broadly flat in Sterling terms as the Yen continued to depreciate. The Emerging Market and Pacific ex-Japan regions lagged behind at -0.7% and -1.2% respectively.

·         Conventional and index-linked gilts had struggled over the quarter as interest rates rose, returning -1.4% and -0.9% respectively. Corporate bonds had benefited from narrowing spreads, with returns broadly flat.

Scheme Performance

·       Assets were valued at £485.3m as at 31 December 2013, an increase of £11.3m over the quarter. The total return on the Fund’s assets over the quarter was calculated to have been 2.8%.

·       Performance from the Fund’s active managers was positive over the course of Q4, 2013 with all managers either performing in line with, or ahead of, benchmark.

Management changes

·        During the quarter the Fund had terminated its investment with the Standard Life UK Equity mandate. On 6 December 2013 the Fund disinvested £97.6m from Standard Life Investments transferring it to Barings Diversified Asset Allocation Fund.

·        A portion of the Fund's assets currently managed by State Street had been disinvested during the quarter with the proceeds being invested into Baillie Gifford Diversified Growth Fund. This was undertaken in three tranches during November and December with a total of £50m being disinvested from the global equity portfolio and £20m being disinvested from the Sterling Liquidity Fund.

Asset Allocation

·         As at the quarter end, the Fund’s direct allocation to equity assets was slightly overweight target at 26.8%. On a look-through basis, the allocation to equity assets was 46%. This compared with an underlying equity allocation of 62% at end Q3, 2013, the change reflecting the change in strategy implemented during the course of the quarter.

Over the quarter all the fund managers had matched or bettered their benchmark. Over the year the picture was the same with the exception of UBS Triton which had experienced well documented problems.

2.    Royal London Asset Management (RLAM)

We welcomed Paul Rayner (Head of Government Bonds) and Fraser Chisholm, (Client Account Manager) to the meeting.  Quarter 4 had been a challenging quarter for the bond market, and although the portfolio had lost value the benchmark had been exceeded.

We were advised that Quarter 1 had seen an upturn with the fund value increasing by over £3m.

We thanked Paul and Fraser for their presentation.

We have noted the report.