Justifying the investment budget

Transcription

1 Justifying the investment budget Professional Pensions DC Conference, 12 April 2016 Tim Horne DC Investment Solutions Manager, Schroders For professional investors only. This material is not suitable for retail clients

2 DC objective What are DC members interested in? Transaction cost Pension freedom Charge cap Chairs statement Asset class choice UFPLS Risk / Return

3 DC objective What are DC members interested in? Having enough money to retire?

4 DC objective Achieving what an individual wants Investment strategy that delivers real returns and managed risk, is essential if an individual is going meet their goal 3

5 DC investment challenge Nothing has changed THE CHALLENGE Defining the challenge Meeting the challenge Delivering what members want The members journey Deliver real returns, managing risk and reducing losses Right solution for each stage of the journey 4

6 13/04/ :57:47 Defining the challenge The DC journey Value of savings Equity like performance Greater focus on downside protection Members will now act in different ways at retirement Growth Stable growth Transition to retirement Into retirement Late retirement 5 Normal retirement age Time

7 13/04/ :57:47 Meeting the challenge Growth is one part of the story Growth is vital, but its not the only outcome that we need to deliver for the member Maximum drawdown 30 September 1990 to 30 September 2015 (weekly data) UK equities Global equities Largest 5 years market fall -15.9% -18.3% Largest 25 years market fall -45.3% -50.0% Source: Financial Express, UK equities: FTSE All Share index. Global equities: MSCI World index, March

8 Meeting the challenge Delivering more certainty Criteria Deliver more certainty Capture growth Diversification Active asset allocation Systematic risk management Likely to satisfy Unlikely to satisfy May satisfy 7

9 Meeting the challenge What s the right mix of asset classes? Asset classes Government bonds Equities High Yield Investment grade Commodities Property Alternatives 8

10 What s the right mix of asset classes Things change 9 Infrastructure US Treasuries Property* EMD (US Dollar) Cash Corporate Bonds Hedge Funds* High Yield US Equity UK Equities EMD Local Currrency Japanese Equity European Equity Emerging Mkt Equities Commodities -30% -25% -20% -15% -10% -5% 0% 5% 10% 15% Return (%) Source: Schroders, Datastream, 29 February UK Equity: FTSE All Share Index, Emerging Equity: MSCI Emerging Markets Index, Japanese Equity: Topix Index, European Equity: Eurostoxx 50 Index, US Equity: S&P 500 Index, EMD (US dollar denominated): JPM EMBI Global Composite Index, EMD (local currency denominated): JPM GBI-EM Global Diversified Composite Index, High Yield: BoA/ML Global High Yield Index, Investment Grade Credit: BoA/ML Non-Gilts All Stocks Index, US Treasuries: Bank Of America Merrill Lynch Treasury Master (USD),Commodities: DJ-UBS Commodity Index, Hedge Funds: HFRI Funds of Funds Composite Total Return Index, Infrastructure: International Public Partnership (representative only), Cash:3 month LIBOR; Property: UK IPD Index. All show total return either in local currency or currency of denomination since passive currency exposure is hedged. RPI data is to the latest available month. *12 months to 29 January 2016 as February data isn't yet available

11 What happens if things go wrong Each phase needs a tool kit for downside risk management Advantages Disadvantages Put options Guaranteed Expensive Volatility cap Low cost Limit upside 10

12 13/04/ :57:47 Delivering at each stage of the journey A balancing act between risk and return Downside risk management Right mix for the into retirement Volatility control Generate a real return Risk Return 11

13 Delivering stable growth Balancing risk and return Diversifying assets Downside risk management Dynamic asset allocation to manage risk Systematic process to automatically de-risk the portfolio in times of high volatility Key features: Inflation +2% return target* Targets losing no more than 8% over any time period* Keeps all retirement options open. *The return and maximum loss targets are investment objectives only and not guaranteed 12

14 Don t get lost in the trees Remember its all about the member I m in here 13

15 Important information For professional investors only. Not suitable for retail clients. This material is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Pension Management Limited does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. Third party data are owned by the applicable third party identified in the presentation and is provided for your internal use only. Such data may not be reproduced or re-disseminated and may not be used to create any financial instruments or products or any indices. Such data are provided without any warranties of any kind. Neither the third party data owner nor any other party involved in the publication of this document can be held liable for any error. The terms of the third party s specific disclaimers are set forth in the Important Information section on our website FTSE International Limited ( FTSE ) FTSE. FTSE is a trade mark of London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited under licence. All rights in the FTSE indices and / or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and / or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE s express written consent. For the purposes of the Data Protection Act 1998, the data controller in respect of any personal data you supply is Schroder Investment Management Limited. Personal information you supply may be processed for the purposes of investment administration by the Schroder Group which may include the transfer of data outside the European Economic Area. Schroder Investment Management Limited may also use such information for marketing activities unless you notify it otherwise in writing. Issued in April 2016 by Schroder Pension Management Limited, 31 Gresham Street, London EC2V 7QA. Registered No England. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. INS