Agenda item

Report attached.

Officers advised the Committee that the net return on the Fund’s investments for the quarter to 31 March 2013 was 9.5%. This represented an out performance of 0.9% against the combined tactical benchmark and an outperformance of 8.2% against the strategic benchmark.

The overall net return for the year to 31 March 2013 was 14.4%. This represented an out performance of 1.1% against the annual tactical combined benchmark and an out performance of 2.9% against the annual strategic benchmark.

The Committee were advised that the global economic data remained mixed with signs of gradual recovery in the US, whilst Eurozone continued to be weak. Most equity markets had made gains over the first quarter of 2013. Government bonds had come under pressure but renewed concerns over Eurozone had ensured some revival in demand for safe havens. Index linked bonds had out performed fixed interest bonds following the decision to retain current RPI calculation methodology. Gross Domestic product had been estimated at -0.3%. CPI inflation had risen to 2.8% with no change in UK interest rates.

1.    Hymans Robertson (HR)

HR advised that equity markets had performed strongly over the first quarter of 2013. Towards the end of March, the main equity indices in the US were approaching all-time highs. The positive tone in equity markets belied concerns about the global economic outlook. In the UK and Eurozone, economic activity contracted during the final quarter of 2012, the most recent period for which figures were available. Although the US economy showed signs of relative strength, policy makers remained cautious and were in no mood to reverse earlier stimulatory measures.

As economic activity in the UK and Eurozone faltered, the effectiveness of quantitative easing and other stimulatory measures were widely questioned by a sceptical public. In the UK, there was even discussion of negative interest rates as a means of persuading banks to lend more. Sterling fell 4.2% in trade-weighted terms.

The Chancellor of the Exchequer had presented his March budget against a background of downward revisions to economic growth forecasts and a cut in the country’s credit rating. With rising debt, austerity remains the order of the day. The budget incorporated further unpopular cuts in public spending.

Both the equity market and gilts continued to prosper in the 2^nd quarter until 4.00pm on the May. After that markets started to get nervous falling back to their position at the beginning of the year.

i.e.                  Footsie           5900 in Jan               6100 in Jun.

Key events during the quarter were:

Global Economy ·

·         The UK’s credit rating was cut by Moody’s, on concerns over continuing economic weakness; ·

·         The UK reported a fall in economic activity in Q4 2012, raising concerns of a return to recession; ·

·         Short-term interest rates in UK, US, Eurozone and Japan were held at record lows; ·

·         Unemployment in Eurozone reached 12%, with wide variations (Germany 5.4%, Spain 26.3%), this included exceptionally high youth unemployment in Spain (50%); ·

·         Japan announced a new package of measures (£72bn) to stimulate its ‘moribund’ economy.

·         The Japanese Yen continued to fall sharply; ·

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

Equities ·

·         Rio Tinto wrote off $14bn in its aluminium and coal businesses;

·         The strongest sectors relative to the ‘All World’ Index were Health Care (+7.5%) and Consumer Services (+3.8%); the weakest were Basic Materials (-11.7%) and Oil & Gas (-2.7%).

Bonds ·

·         The US announced the continuation of the bond purchase programme ($85bn per month); ·

·         Index linked gilts (+7.9%) outperformed fixed interest gilts (+0.7%); this followed the decision of the UK Statistical Authority to retain the current RPI calculation methodology.

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

2.    Baillie Gifford (BG)

Fiona MacLeod and Hamish Dingwall attended the meeting to advise the Committee on the performance of the mandate managed by Baillie Gifford. Baillie Gifford had been appointed in April 2012.

Baillie Gifford takes a long term view and their target is to outperform the MSCI AC World Index by 2.0 – 3.0% per annum (gross) over rolling five year periods.

There had been no major changes in the portfolio since March and they anticipated no significant changes in the foreseeable future. Details of how the portfolio had been developed were provided to the Committee.

The Committee thanked Fiona and Hamish for their presentation.

3.    Ruffer (Ru)

David Balance (Investment Director0 and Matt Stonebridge (Investment Associate) attended the meeting to give an update on the performance of the portfolio they managed on behalf of the Pension fund.

The Pension Fund first invested with Ruffer in September 2010, and in May of this year they were given additional funds to manage. Since then Ruffer has performed excellently. However, they highlighted the difficulties they had faced since the end of May when the market dropped by 2.8%. Despite this they were confident they could outperform their benchmark target.

Details of proposed changes to the portfolio were provided for the Committee’s information and it was anticipated that this would reverse the trend.

The Committee thanked David and Matt for their presentation.

4.    UBS

John Murnaghan attended the meeting to update the Committee on the current position. In summary the focus of the discussions were in relation to the redemption situation with news that the liquidation notice had now been withdrawn.

The Committee thanked John for his update.