Download EDS 1994 Pension Scheme - 2010 AVC Investment Report Quarter 4

March 2011
EDS 1994 Pension Scheme AVCs
Investment Report – 31 December 2010
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Registered in England No. 984275 Registered Office: 1 Tower Place West, Tower Place, London EC3R 5BU
EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
Summary
The EDS 1994 Pension Scheme (the “Scheme”) is an HM Revenue and Customs approved Defined Benefit pensions arrangement. This report
provides details of the unit-linked funds in which members of the Scheme may invest their additional voluntary contributions (“AVCs”).
The Scheme Trustee had previously appointed Fidelity Pensions Management (“Fidelity”), Prudential M&G Ltd (“Prudential”), London Life Ltd
(“London Life”) and Equitable Life Assurance Society (“Equitable Life”) to provide vehicles in which the members of the Scheme could invest
their AVCs. During January 2008, however, all of the unit-linked assets with these providers, and a portion of those held in the with-profits
funds, were transferred to a new Mercer/Skandia platform arrangement.
Assets continue to be held in with-profits funds with Equitable Life, London Life and Prudential, although these options are now closed to
contributions from new and existing members.
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EDS 1994 Pension Scheme AVCs
Contents
Investment Report - 31 December 2010
Page
1. Market Background
1
2. Performance Summary
4
3. Notification of changes to underlying funds
7
Appendices
A Fund Fact Sheets
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
1
Market Background
Market Index Returns – Three Months to 31 December 2010
All equity markets delivered positive returns in both sterling and local
currency terms over the quarter.
Three Month Performance to 31 December 2010
30
25
20
14.1 13.4
T otal Retu rn (%)
15
12.8
11.5
10.0 8.3
10
10.8
8.8
10.8
Property posted positive returns for the sixth quarter in a row.
8.1
7.4
6.4
4.6 4.4
5
Bond markets were down this quarter following three quarters of
consistent positive returns. The only exception to this trend was seen
in over five year index-linked gilts, which rose in value.
5.6
Commodities were the best performing asset class, posting strong
positive returns over the quarter.
2.2
1.1
0.2
0
-0.7
-3.5
-5
-2.5
-1.6
-10
UK Equities
Overseas
Equities
US Equities Europe (ex Japanese Asia Pacific
UK) Equities Equities
(ex Japan)
Equities
Source: Thomson Re uters Datastream.
Emerging
Markets
Over 15 UK Non Gilts Over 5 Year
Year Gilts All Stocks Index Linked
Gilts
Global
Bonds
Property
Sterling Return
Cash
Commodities
Local Currency Return
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
Market Background
The fourth quarter of 2010 saw a continuation of the positive trend in equity and other ‘risk’ asset markets around the globe, with more
positive economic signals coming out of some major markets. However the UK economy continued to lag the global recovery and yields on
both UK government and corporate bonds rose over the quarter. Inflation trended lower in the US but there are signs of inflationary
pressures in some emerging markets and in parts of Europe.
Following what President Obama described as his “shellacking“ by the US electorate in the mid-term elections, it was not surprising to see
the Federal Reserve Bank (the “Fed”) extend its programme of quantitative easing with announced purchases of a further $600 billion of
long-term Treasury securities by the end of the second quarter of 2011. This stimulative package, dubbed QE2, does seem to be having a
positive initial effect, with improved car sales and lower levels of jobless claims, and a Chicago purchasing managers’ index level of 68.6
(the highest reported since the late 1980s). In 2009 the USA represented 26.4% of the world total GDP, and given the bias of the US
economy towards the consumer the Fed’s actions look set to stimulate world economic growth over the short term. Consensus forecasts for
world real GDP growth of 3.2% in 2011, led by 2.7% real GDP growth in the US in 2011 (source: Consensus Economics Inc 2010) are likely
to be exceeded. The effect on the US dollar and on the US balance of trade of the stimulative package is harder to gauge.
Europe suffered from negative sentiment in the fourth quarter, with renewed pressure on “peripheral” sovereign bonds, and a second bailout
package for Ireland being required in November. Attention will focus next on Portugal’s problems with the spectre of a bailout of Spain then
being required. The European Central Bank has since been forced into supporting the bond market. The performance of the German
economy, away from these distractions, continued to suggest that a robust (and widespread) recovery is underway.
The developing world continued to show higher rates of economic growth than the highly indebted mature economies. China in 2010
overtook Japan to become the world’s second largest economy, and Latin America’s real GDP has rebounded strongly from its slight
decline in 2009 to an estimated increase of 5.6% in 2010 (source: Consensus Economics Inc).
Equity markets performed well over the quarter with all major markets rising in sterling terms, and the only negative returns coming from
some of the weaker European markets namely Greece, Italy, Spain, Hungary and Belgium.
The FTSE All-World Index rose by a further 9.4% over the quarter in sterling terms, and by 16.7% over the calendar year in sterling terms.
The rise this quarter was led by the Japanese, US and Asia Pacific markets. The FTSE All Share Index rose by 7.4% over the quarter and
by 14.5% for the calendar year.
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
Currencies had a much less volatile quarter with the main feature for a UK-based investor being a 3.5% decline in sterling against the yen.
Over the year sterling has declined 15.5% against the Yen and 3% against the US dollar but appreciated 3.7% against the Euro.
UK government and corporate bonds weakened over the quarter, with a total return from gilts of -2.1% as measured by the FTA UK Gilts All
Stocks Index and of -2.5% from the Merrill Lynch Sterling Non Gilt Index. The yield on the FTSE Over 15 Year Index ended the year at
4.1%. The steepening of the US yield curve was a notable trend in the fourth quarter, but the UK curve did not follow this move. Short term
interest rates remain at record low levels. Index-linked gilts gave a marginal positive total return over the quarter of 1.1% for the All Stocks
Index. Real yields remain negligible and negative at the short end.
Cash rates remain extremely low, and property values continued to rise with the IPD Monthly Property Index returning 2.2% over the fourth
quarter of 2010. The major commodities all had a strong quarter, suggesting that there are inflationary pressures in the global economy. The
price of Brent crude oil rose by 14.3% over the quarter to US$92.81, a rise of 19.9% over the year, and gold rose by 8.9% over the quarter
and by 29.4% over the year.
In summary, it seems that the likelihood of a double-dip global recession has receded although the lack of action by the US in particular to
reduce its budget deficit is a cause for concern.
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
2
Performance Summary
All investment options associated with the scheme during the period covered by the report are shown.
Quarter
(%)
1 Year
(%)
Skandia -EDS 1994 Pension Scheme AVC Passive Base Fund 1
5.5
13.4
5.0
Benchmark
5.0
13.3
5.1
Excess return
0.5
0.1
-0.1
7.5
12.5
2.5
Benchmark
6.6
14.0
4.3
Excess return
0.9
-1.5
-1.8
Skandia -EDS AVC 1994 Passive UK Equity Fund 1
7.4
14.4
3.0
Benchmark
7.4
14.5
3.0
Excess return
0.0
-0.1
0.0
Option
Skandia -EDS 1994 Pension Scheme AVC Active Base Fund
1
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Since inception
(% p.a.)
4
EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
Quarter
(%)
1 Year
(%)
Skandia -EDS AVC 1994 Passive Overseas Equity Fund 2
9.8
16.0
4.8
Benchmark
9.9
16.2
4.9
-0.1
-0.2
-0.1
8.1
12.2
1.8
Benchmark
6.8
14.5
2.9
Excess return
1.3
-2.3
-1.1
11.6
16.5
2.7
Benchmark
9.7
15.7
4.6
Excess return
1.9
0.8
-1.9
Skandia -EDS 1994 Pension Scheme AVC Passive Bond Fund 1
-2.7
8.4
5.1
Benchmark
-2.9
8.6
5.5
0.2
-0.2
-0.4
0.1
0.4
2.0
Benchmark
0.1
0.4
1.9
Excess return
0.0
0.0
0.1
Option
Excess return
Skandia - EDS 1994 Pension Scheme AVC Active UK Equity Fund
1
Skandia -EDS 1994 Pension Scheme AVC Active Global Equity Fund 1
Excess return
Skandia -EDS AVC 1994 Cash Fund
1
Since inception
(% p.a.)
Notes:
Fund performance is shown net of fees and all fund information has been sourced from Skandia Life Assurance Company, Ltd.
1
2
Inception date: 11 January 2008
Inception date: 14 January 2008
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
Total and Relative Performance over the quarter to 31 December 2010
20
15
%
10
5
0
-5
Skandia Passive
Base Fund
Skandia Active Base
Fund
Skandia Passive
UK Equity Fund
Skandia Passive
Overseas Equity
Fund
Fund
Bench
Skandia Active UK
Equity Fund
Skandia Active
Global Equity Fund
Skandia Passive
Bond Fund
Skandia AVC Cash
Fund
Skandia Passive
Bond Fund
Skandia AVC Cash
Fund
Excess Return
Total and Relative Performance over the year to 31 December 2010
20
15
%
10
5
0
-5
Skandia Passive
Base Fund
Skandia Active Base
Fund
Skandia Passive
UK Equity Fund
Skandia Passive
Overseas Equity
Fund
Fund
Bench
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Skandia Active UK
Equity Fund
Skandia Active
Global Equity Fund
Excess Return
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
3
Notification of changes to underlying funds
Following a recommendation from Mercer, the Trustee of the of the EDS 1994 Pension Scheme has agreed to make some changes to the
underlying funds within the EDS Active UK Equity Fund, the EDS Active Global Equity Fund and the EDS Active Base Fund. These changes
are due to be implemented by the end of the second quarter of 2011.
The changes are outlined in the following tables:
EDS Active UK Equity Fund:
–
Existing Components (equal weightings)
New Components (equal weightings)
Majedie UK Equity
Majedie UK Equity
AllianceBernstein UK Value Equity
Artemis UK Equity Income
RCM UK Value Equity
Baillie Gifford UK Equity Alpha
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
EDS Active Global Equity Fund:
–
Existing Components (equal weightings)
–
New Components (equal weightings)
MFS - Global Equity
MFS - Global Equity
AXA Rosenberg Global Equity Alpha
Baillie Gifford - Global Alpha
Schroder - QEP Global Core
EDS Active Base Fund:
–
Existing Components
New Components
AllianceBernstein – UK Value portfolio (14.2%)
Artemis – UK Equity Income (14.2%)
RCM – UK Equity (14.2%)
Baillie Gifford - UK Equity Alpha (14.2%)
Majedie – UK Equity (14.2%)
Majedie – UK Equity (14.2%)
MFS Meridien - Global Equity (14.2%)
MFS Meridien - Global Equity (14.2%)
Axa Rosenberg Global Equity Alpha (14.2%)
Baillie Gifford - Global Alpha (14.2%)
AllianceBernstein – Global Equity Blend Portfolio (14.2%)
Schroder - QEP Global Core (14.2%)
Insight – UK Broad Market Bond Fund (15.0%)
Insight – UK Broad Market Bond Fund (15.0%)
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
Important Notices
© 2011 Mercer LLC. All rights reserved
This report contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was
provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without
Mercer’s written permission.
The findings, ratings and/or opinions expressed herein are the intellectual property of Mercer and are subject to change without notice. They are
not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed.
Past performance does not guarantee future results.
This report does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this
information without first obtaining appropriate professional advice and considering your circumstances.
Information contained herein has been obtained from a range of third party sources. While the information is believed to be reliable, Mercer has
not sought to verify it. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no
responsibility or liability (including for indirect, consequential or incidental damages), for any error, omission or inaccuracy in the data supplied
by any third party.
This report does not constitute an offer or a solicitation of an offer to buy or sell securities, commodities and/or any other financial instruments or
products.
The term “strategy” is used in this context to refer to the process that leads to the construction of a portfolio of investments, regardless of
whether it is offered in separate account format or through one or more funds. The rating assigned to a strategy may or may not be consistent
with its historical performance. While the rating reflects Mercer’s expectations on future performance relative to its benchmark, Mercer does not
provide any guarantees that these expectations will be fulfilled.
Mercer does not generally take the investment management fees of a given manager into account in determining ratings. Managers’ fees
charged for a specific strategy will often vary among investors, either because of differing account sizes, inception dates or other factors. Mercer
does not perform operational infrastructure due diligence or personal financial or criminal background checks on investment managers.
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
Mercer’s research process and ratings do not include an evaluation of a manager’s custodian, prime brokerage, or other vendor relationships or
an assessment of its back office operations. Research is generally limited to the overall investment decision-making process used by
managers.
Mercer's investment consulting business rates and/or recommends strategies of investment managers, some of whom are either Mercer clients,
Mercer affiliates or clients of Mercer’s affiliates. The services provided to those managers may include a broad range of consulting services as
well as the sale of licenses to use Mercer’s proprietary software and databases and/or subscriptions to Mercer's investment forums. Policies are
in place to address these and any other conflicts of interest that may arise in the course of Mercer’s business. This is only a summary of
Mercer’s conflicts of interest. For more information on Mercer’s conflict of interest policies, contact your Mercer representative.
Mercer manager universes are constructed using data and information provided to Mercer either directly or via third party providers. The
universes are intended to provide collective samples of strategies that best allow for robust peer group comparisons to be conducted over a
chosen timeframe. Mercer does not assert that the peer groups are wholly representative of and applicable to all strategies available to
individual investors. Universe distributions are calculated based on the data that was in our database at the time that the universe was
constructed, and may therefore change over time due to additional information supplied by an investment manager or revisions to data.
The Skandia investment platform funds are written technically as a long-term insurance contract with Skandia (the "insurer"). Mercer
recommends the placing of business with insurers which have a sufficient degree of financial strength. Mercer’s assessments of insurers’
current financial strengths are based on the latest available regulatory returns (to the Financial Services Authority in the case of a UK-based
insurer) and any other relevant information the insurer has supplied to us. Mercer accepts no responsibility or liability, including for
consequential or incidental damages or for a particular insurer’s future solvency. Mercer does not undertake to carry out monitoring of an
insurer’s financial condition on behalf of clients after a contract is effected.
Risk Warnings:
•
The value of stocks and shares, including unit trusts, can go down as well as up and you may not get back the amount you have invested.
• The value of gilts, bonds, and other fixed income investments can go down as well as up and you may not get back the amount you have
invested.
•
Investments denominated in a foreign currency will fluctuate with the value of the currency.
• The value of investments in real property can go down as well as up, and you may not get back the amount you have invested. Valuation is
generally a matter of a valuer’s opinion, rather than fact. It may be difficult or impossible to realise an investment because the property
concerned may not be readily saleable.
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EDS 1994 Pension Scheme AVCs
Investment Report - 31 December 2010
Appendix
Fund Fact Sheets
The following fund fact sheets give further detail on the range of unit-linked funds (not including the with-profits unit-linked funds) in which
members of the Scheme may invest their additional voluntary contributions.
The aim of these fact sheets is to give members further detail on each of the funds available, provide key comparatives between these funds in
terms of return target, risk profile etc and to give a fund “suitability” indicator to members in terms of position to retirement and risk appetite.
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EDS 1994 Pension Scheme AVCs
Investment Report – 31 December 2010
Skandia - EDS 1994 Pension Scheme AVC Passive Base Fund
Mercer
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EDS 1994 Pension Scheme AVCs
Investment Report – 31 December 2010
Skandia – EDS 1994 Pension Scheme AVC Active Base Fund
Mercer
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EDS 1994 Pension Scheme AVCs
Investment Report – 31 December 2010
Skandia - EDS 1994 Pension Scheme AVC Passive UK Equity Fund
Mercer
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EDS 1994 Pension Scheme AVCs
Investment Report – 31 December 2010
Skandia – EDS 1994 Pension Scheme AVC Passive Overseas Equity Fund
Mercer
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EDS 1994 Pension Scheme AVCs
Investment Report – 31 December 2010
Skandia - EDS 1994 Pension Scheme AVC Active UK Equity Fund
Mercer
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EDS 1994 Pension Scheme AVCs
Investment Report – 31 December 2010
Skandia – EDS 1994 Pension Scheme AVC Active Global Equity Fund
Mercer
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EDS 1994 Pension Scheme AVCs
Investment Report – 31 December 2010
Skandia – EDS 1994 Pension Scheme AVC Passive Bond Fund
Mercer
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EDS 1994 Pension Scheme AVCs
Investment Report – 31 December 2010
Skandia – EDS 1994 Pension Scheme AVC Cash Fund
Mercer
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