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Investment Update
Retail Pension Funds June 2016
This communication is intended for investment professionals only and must not be relied on by anyone else.
Key Facts
The global economy weakened at the start of
the year, caused by a variety of factors including
headwinds to US manufacturing, excess
capacity in China and political uncertainty in
Europe. Nevertheless, activity in the services
sector is holding up better than manufacturing.
In coming months, political uncertainty could
have a considerable impact on business and
consumer confidence in several important
countries.
Turning to fixed income, we emphasise
sustainable yield as a theme. We have further
increased our positions in corporate bonds;
although selective purchases are required given
balance sheet risks. We also prefer to move up
the capital structure when corporate earnings
growth is low. Within government bonds, we
prefer European to US bonds, bearing in mind
the relative direction of inflation and monetary
policy pressures.
Financial markets endured a volatile start to
2016, with a sharp rally in oversold assets
once fears over recession were disproved. We
remain cautious on commodity prices or related
assets, such as high yield debt or emerging
market equities, given adverse supply/demand
dynamics for many raw materials. Within equity
markets, a focused approach is important given
headwinds to corporate earnings growth in
many markets.
Within real estate, we prefer continental Europe
versus the UK, as it is at an earlier stage of the
cycle and low interest rates continue to support
core markets. We remain Neutral in North
American and Asia Pacific real estate markets.
Investment Indices Annual growth up to 01/06/2016
Pension Managed Fund
Fund %
FTA British Govt 5 to 15 Years Index
FTSE 100
FTSE All-Share Index (Fund HR)
FTSE World Europe Ex UK Index
FTSE World Index
Hang Seng
MSCI Brazil
S&P 500 Composite Index
5.1
-7.2
-6.3
-3.5
-0.8
-17.5
-14.2
4.3
Standard Life Multi Asset Managed
(20-60% Shares) Pension Fund
Fund %
UK Equities
North American Equities
Japanese Equities
Pacific Basin Equities
Emerging Market
European Equities
Overseas Bonds
UK Fixed Interest
Property
28.9
14.0
6.9
4.4
-0.2
16.6
6.4
7.8
1.7
Cash & Other
13.7
Pension Stock Exchange
Fund
Fund %
UK Equities
North American Equities
Japanese Equities
Pacific Basin Equities
Emerging Market
European Equities
Overseas Bonds
UK Fixed Interest
Property
Index Linked
Cash & Other
27.8
5.0
4.0
1.8
-0.4
10.4
14.7
22.0
1.6
1.3
12.0
Fund %
UK Equities
North American Equities
Japanese Equities
Pacific Basin Equities
Emerging Market
European Equities
Cash & Other
33.6
22.0
9.3
4.9
-0.5
19.0
11.9
Pension Ethical Fund
Pension Global Equity 50:50 Fund
Fund %
UK Equities
European Equities
Overseas Bonds
UK Fixed Interest
Cash & Other
Fund %
48.3
22.8
1.4
14.2
13.4
48.8
28.9
3.3
3.9
0.0
12.9
2.3
UK Equities
North American Equities
Japanese Equities
Pacific Basin Equities
Emerging Market
European Equities
Cash & Other
Annualised Growth
Gross of annual management charges. Performance figures are calculated on a gross basis over
periods to 1 June 2016. They do not allow for any charges which may be deducted.
1
Year
%
3
Years
% p.a.
5
Years
% p.a.
10
Years
% p.a.
2,495,043
-0.7
4.6
6.5
6.3
1,006,874
930,261
1,481,173
921,204
846,465
1,164,274
2,089,201
483,989
334,928
764,124
591,359
888,356
42,352
71,977
915,693
3,690,021
61,852
1,232,992
5.4
-4.4
0.6
4.1
2.0
6.0
-8.2
3.9
-14.0
0.5
0.3
-3.6
-4.0
-3.2
0.8
3.5
-6.8
-4.1
6.0
3.9
6.6
13.6
6.2
11.4
3.7
5.1
0.4
0.5
7.3
4.8
6.6
7.6
0.8
5.6
3.7
6.0
7.9
4.5
9.2
14.1
9.0
8.1
6.0
6.7
1.8
0.5
8.8
6.6
7.8
8.7
0.8
7.4
6.3
7.8
6.8
6.3
2.7
10.7
8.1
2.9
5.0
6.5
8.2
-7.4
6.3
7.6
8.2
2.2
6.6
9.8
8.7
Size of Fund
(£’000)
Multi Asset Managed (20-60%
Shares)
Annuity Purchase
European
Japanese
North America
Index Linked
Property**
UK Equity
Mixed Bond Pension
Pacific Basin
Deposit & Treasury
Ethical
Managed
Stock Exchange
International
Money Market
Corporate Bond
UK Equity Select
Global Equity 50:50
Source: Standard Life Investments
** Figures quoted are calculated on a bid to bid basis with income reinvested over the stated periods and are based and includes change in
pricing to minimum valuation basis in August 2007.
House View - 1 June 2016
Risk
The Global Investment Group retains a cautious near-term outlook, as a variety of drivers point to
greater financial volatility in the coming year. While there are particular areas of value, investors
should be highly selective in asset allocation decisions.
Government Bonds
US Treasuries – Very Light
Tightening labour markets and rising wages can
give the Federal Reserve reason to raise interest
rates gradually. However, it is wary of market
stress and global economic conditions.
European Bonds – Heavy
An environment of low inflation, modest
economic growth, further QE and negative
official rates support European bonds. Political
pressures may affect peripheral bond markets
on occasion.
UK Gilts – Light
The positive economic growth backdrop
supports eventual rate increases. The Bank of
England will examine how the US tightening
cycle progresses and monitor inflation
pressures.
Japanese Bonds –Neutral
The Bank of Japan’s sizeable bond-buying
programme and negative interest rates have
driven valuations into expensive territory, as
authorities try to reflate the economy.
Global Inflation Linked Debt – Neutral
While inflationary conditions are subdued
globally, markets may react to a rise in headline
inflation as the impact of previous commodity
price weakness becomes less marked over time.
Global Emerging Market Debt – Heavy/Neutral
Dollar-denominated bonds are Heavy as
spreads show better value, while local currency
bonds are Neutral as careful examination is
required of individual currency and spread
factors.
Developed Asian Equities – Light
Trade flows are increasingly a headwind, with
a strong Australian dollar affecting its terms of
trade. China’s economic slowdown is harming
commodity producers as well as regional trade.
Emerging Market Equities – Neutral
There are pockets of deterioration within
emerging markets, with the commodity
price slump badly affecting Brazil, political
uncertainty in Eastern Europe and large
behavioural shifts affecting the Chinese market.
Property
UK - Neutral
The economic growth environment supports real
estate and yields remain attractive. However,
the market is more advanced in the cycle than
continental Europe.
Corporate Bonds
Europe – Heavy
Core markets continue to offer attractive
relative value in light of the low interest rate
environment supported by QE, while recovery
plays are showing consistent capital value
growth.
Investment Grade – Heavy
Our preference is to be higher up the corporate
capital structure. Widening US credit spreads
create an attractive opportunity over lowyielding Treasuries; while the ECB’s bondbuying programme supports euro debt.
North America – Neutral
Canadian property faces headwinds from
significant office construction and consumers
that are sensitive to interest rates. The US
should benefit from continued economic growth
but pricing is quite aggressive.
High Yield Debt – Neutral
Recent sell-offs have improved valuations
modestly, but overcrowding remains a risk
in the US market when monetary policy is
tightened; European debt remains supported by
yield-seeking investors.
Asia Pacific – Neutral
An attractive yield margin remains but markets
are divergent. Returns are driven by rental and
capital value growth in Japan, but limited to
capital growth in Australia, Hong Kong and
China. Emerging Asia markets are risky.
Equities
Other Assets
US Equities – Neutral
Weaker revenues in key sectors such as energy
pose a concern, so earnings management is
key. Dividends and share buybacks remain
supportive, while valuations have become more
attractive.
Foreign Exchange – Heavy $, Neutral €, ¥,
Moved to Light £
The US dollar has risen considerably but
benefits from safe-haven status; European
and Japanese central banks aim to keep their
currencies weak. The EU referendum is negative
for sterling.
European Equities – Moved to Neutral
Corporate earnings should receive a lift from an
improvement in domestic demand, good cost
control and cheaper commodities. However, a
variety of political issues overhangs markets.
Japanese Equities – Neutral
Yen appreciation affects Japanese equities
but improving corporate governance, lower
corporate taxes and the QQE programme
supports the asset class. Decisions on fiscal
policy and structural reforms over the summer
are key.
UK Equities – Neutral
Political uncertainty offsets domestic economic
strength to some extent. A large portion of the
market is exposed to weaker commodity prices,
emerging market pressures and greater banking
regulation.
Global Commodities – Neutral
Different drivers, such as US dollar appreciation,
Chinese demand, Middle East tensions and
climatic conditions, influence the outlook for
different commodities.
Cash
Cash – Neutral
The US and some emerging markets have
started to raise interest rates, while the UK
waits for the opportune moment. In Europe and
Japan, policy should remain easy.
Important Information
Growth figures for Investment Indices include reinvested income, and are expressed in sterling. For
comparison purposes these figures do not allow for any taxes, charges and dealing costs.
The FTSE All-Share Index®, FTSE All-Share Index and FTSE World Europe ex UK Index are calculated
solely by FTSE International Limited. FTSE International Limited does not sponsor, endorse
or promote this product. All copyright in the index values and constituent list vests in FTSE
International Limited. Standard
Life Investments Limited has obtained full licence from FTSE International Limited to use such
copyright in the creation of this product. “FTSE™”,”FT-SE®” and “Footsie®” are trade marks of
Exchange and FT and are used by FTSE International Limited under licence. “FTSE All-Share” is a
trade mark of FTSE.
”Cash and Other” for example, may include bank and building society deposits, other money
market instruments such as Certificates of Deposits (CDs),
Floating Rate Notes (FRNs) including Asset Backed Securities (ABSs) and allowances for tax,
dividends and interest due if appropriate.
Past Performance is not a guide to future performance. The price of shares and the income from
them may go down as well as up and cannot be guaranteed; an investor may receive back less than
their original investment.
These funds may only be accessed through policies issued by Standard Life Assurance Limited.
To find out more about our funds visit our website standardlifeinvestments.com. Alternatively,
please speak to your usual contact at Standard Life Investments.
Useful numbers
Servicing
+44 (0)345 60 60 012
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+44 (0)345 60 60 062
standardlifeinvestments.com
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party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data. Past
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Standard Life Investments Limited acts as Investment Manager for Standard Life Assurance Limited and Standard Life Pension Funds Limited.
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