Agenda item

Quarterly Investment Performance Report to 30/6/19 / Adroddiad Perfformiad Buddsoddi Chwarterol 30/6/19

Minutes:

5.1       The HoP highlighted the following key headlines from the report:

  • Markets had been generally rocky in Quarter 1; however some recovery had been seen in Quarter 2.
  • The trade wars and relations between the US and China had an effect on the markets, as did issues around Brexit.
  • At the end of June 2019 the value of the Fund had increased by £130 million to £3,058 million. At the end of August 2019 the value of the Fund was £3,077 million, which was a fair way ahead of the value of the Fund at the start of the year.
  • Investment performance was marginally below the benchmark over 1 year; however performance was healthy and ahead of the benchmark over 3 years, 5 years and 10 years respectively.
  • Healthy investment performance over 3 years was helpful and positive in terms of the 2019 Actuarial Valuation.
  • The investment performance by fund managers could be seen in paragraph 9 of the report; however it was important to note that Aberdeen Standard had come back strongly in recent months. The DIIA added that a change in senior manager at Aberdeen Standard had resulted in positive changes to their whole process, including their short-term tactical decisions.
  • The first full quarter of results from the Wales Pension Partnership (WPP) was available, where Global Equities investments had outperformed the benchmark, as well as providing more competitive fee rates.
  • The Fund was looking to invest in UK Equities within the WPP within the next month.

 

5.2       The IIA provided the following headlines from Appendix 1 of the report:

  • Markets had more than recovered their May 2019 losses; however an up and down summer had taken place.
  • The US Federal Reserve had cut interest rates for the first time in 10 years, which suggested growth concerns.
  • Risk aversion could be seen by the strong demand for Government Bonds and the fact that UK Gilts had delivered 3.8% in August 2019.
  • Sterling was weak in July 2019 and flat in August 2019, largely due to the uncertainty around Brexit.
  • Growth in the Eurozone was quite slow, leading to the phrase Euro-fication being adopted.
  • Currencies, commodities and equities investments were all becoming more volatile. As a result, the Fund needed to keep abreast of what individual investment managers were doing and make sure that diversification existed in terms of the Fund’s investments.

 

5.3       Following questions from the Committee, the IIA made the following points:

  • In the long-term, it was not a good idea to make too many tactical changes to the Fund’s Strategic Asset Allocation (SAA) and in the short-term this could be expensive.
  • More diversification of investments was needed along with global exposure and changes around equities investments needed to be staggered over time.
  • Investments in property and infrastructure should improve once issues around Brexit had become clearer.
  • It was important to have investments within the Fund’s portfolio that could perform well during a recession.
  • A broad-based approach to currency exposure would be her recommendation and it was impossible to know the trajectory that Sterling would take in future.
  • Dividends could be accessed in order to manage a shortfall in cash flow; however it was likely that other areas would be accessed first, especially cash and fixed interest investments.

 

5.4       The Pensions Committee agreed to:

(i)  Note the investment performance that had taken place during the second quarter of 2019: and

(ii)Note recent investment activity and consider any further appropriate course of action required.

Supporting documents: