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 2014 was 2.7%. This represented an out performance of 0.2% against the combined tactical benchmark and an under performance of -4.7% against the strategic benchmark.

The overall net return for the year to 30 September 2014 was 8.6%. This represented a performance in line with the tactical combined benchmark and an out performance of -5.2% against the annual strategic benchmark.

1.    Hymans Robertson(HR)

Market Summary

·         The UK economy continued to recover, with ONS data released in September showing that the UK economy had passed its pre-recession peak. The unemployment rate continued to fall, coming in lower than expected at 6.2% in July – the number of people unemployed had now fallen to below 2 million for the first time since 2008. Across the water, a similarly upbeat picture was being painted by US economic data, with unemployment continuing to fall and third-quarter growth expected to come in around 3% p.a.

·         Short-term interest rates in the UK, US, and Japan remained unchanged. However, the European Central Bank had cut interest rates from 0.15% to 0.05% and slashed the deposit rate for banks to -0.2% in an effort to stimulate the still moribund Eurozone economy and ward off deflation. Over the quarter, Japanese equities had been the standout performer, up 5.9%. However, taking account of currency movements, the US (6.4%) and Emerging Market (3.2%) had delivered the best returns to Sterling investors. Conventional and index-linked gilts remained in positive territory as yields fell, returning 3.7% and 5.9% respectively. Credit spreads widened, resulting in corporate bonds returning 2.9% over the quarter. Property had also continued to post strong returns.

Fund Performance

·         Assets were valued at £529.3m as at 30 September 2014, an increase of £13.0m over the quarter. The total return on the Fund’s assets over the quarter was 2.5%, marginally ahead of the benchmark return of 2.3%.

·         Performance from the Fund’s active equity manager, Baillie Gifford, had detracted from performance as the mandate underperformed its benchmark by 1.2%. Performance from the Multi-asset mandates had been positive with the Baillie Gifford DGF, Barings DAAF and Ruffer Absolute funds all outperforming their respective benchmarks.

Investment manager changes

·         In August, Barings had announced the departure of Percival Stanion (head of the Global Multi-Asset group and lead portfolio manager for the DAA Fund) together with Andrew Cole and Shaniel Ramjee, two other members of the team. Following this, HR had changed their rating of the DAA Fund to “1”-Sell immediately and had advised the Fund to disinvest. Disinvestment had been made on the 29 August 2014 dealing date, with the funds being transferred into the SSgA Sterling Liquidity Fund. Following the quarter end, the Committee had agreed to invest in the GMO Global Real Returns (UCITS) Fund as a replacement for Barings.

Asset Allocation

·         As at the quarter end, the Fund’s direct allocation to equity assets had been slightly overweight target at 26.0%. On a look-through basis, the equity allocation had reduced from 45%, previous quarter, to 35% as at 30 September 2014. This reflects the disinvestment from the Barings DAAF which had a significant allocation to equities (c.54%). The Fund was currently overweight to cash, although this was expected to be eliminated before the year end.

2.    Baillie Gifford (BG)

James Mowat and Paul Morrison attended the meeting to give a presentation on the performance of BG’s Global Alpha and Diversified Growth Funds. Both funds had shown growth in the quarter and this had been continued up to 31 October 2014.  As at 15 December the total value of the two funds combined remained the same.

3.    Miscellaneous

The Committee was advised that following the decision to appoint GMO and invest in their Global Real Return (UCITS) Fund (GRRUF) officers had completed the necessary documentation and intended to transfer the funds early in the New year.

The Committee noted the report.