Minutes:
Officers advised the Committee that the net return on the Fund’s investments for the quarter to 30 September 2012 was 3.7%. This represented an out performance of 0.5% against the combined tactical benchmark and an outperformance of 1.8% against the strategic benchmark. The overall net return for the year to 30 September 2012 was 14.1%. This represented an out performance of 0.9% against the annual tactical combined benchmark and an under performance of -1.6% against the annual strategic benchmark.
The Committee were advised that UK Equities had made solid gains in the quarter as markets were boosted by Central Bank stimulus measures across the globe. The UK economy remained sluggish and the Bank of England had cut its forecast for growth in 2012 to close to zero. Global markets had posted steady gains despite economic growth forecasts being revised downwards. The Central Banks provided further policy supports to financial markets. Core government bonds had been driven into expensive territory due to demand of a flight to safety and the effects of quantitative easing. There were no changes to UK interest rates at 0.5% and inflation closer to targets.
1. Hymans Robertson (HR)
HR advised the Committee that in many European countries, including the UK, there was an active debate over the balance between austerity measures and the need to promote economic growth. Civil unrest in Spain and Greece in September demonstrated the deep unpopularity of austerity measures. In the US, weak employment numbers were a recurring source of concern. The Eurozone crisis had been regularly cited as the greatest threat to the global economy. In the US and China decelerating economic growth had been the catalyst for further monetary easing.
In bond markets, Spain, Portugal and Italy continue to pay a ‘premium’ price for borrowing. In contrast, certain German bonds, at times. Returned a negative yield, as investors effectively paid for the security they offered.
Key events during the quarter were:
Global Economy
· Policy makers in the UK, Eurozone, US, Japan and China had announced further asset purchase programmes to stimulate economies;
· Short-term interest rates were unchanged in UK, US and Japan;
· Eurozone short-term interest rates were cut, from 1.0% to 0.75%;
· France and Italy had pressed the case for economic growth rather than austerity as policy priority;
· Moodys had placed the outlook for credit ratings of Germany and Netherlands on ‘negative watch’.
Equities
· Apple became world’s largest company measured by market capitalisation ($623bn);
· The strongest sectors relative to the ‘All World’ Index were Oil & Gas (+2.6%) and Financials (+1.6%); the weakest were Utilities (-5.7%) and Consumer Goods (-2.4%).
Bonds
· The ECB had announced a bond purchase programme to assist countries struggling to raise funds;
· Corporate bonds had outperformed government issues by a significant margin.
The action taken by policy makers during the quarter reflected deep unease about the global economic outlook. For the US, and indeed the global economy, much depended on the outcome of the November presidential election. The two main candidates offer very different economic strategies.
The Committee were advised of the performance of the various Investment managers during the quarter. Further details are available in the confidential minutes.
2. State Street (SS)
Kevin Cullen, Senior Relationship Manager advised the Committee that the Passive Equity Portfolio continued to perform as expected. Since inception the fund had outperformed the benchmark by 0.03%.
The Committee thanked Mr Cullen for his presentation.
3. UBS Triton (UBS)
The new Portfolio Manager, Howard Meaney and Natasha Paterson, Investor Relations attended the meeting to update the Committee on the current position with the UBS Triton Fund. Details of the discussions are included in the exempt minutes.