Investment Report - Standard Lifelibrary.adviserzone.com/PassivePlusReport.pdfStandard Life Passive...

Corporate Investment Proposition Passive Plus Funds Report

1Corporate Investment Proposition Passive Plus Funds Report

Investment ReportStandard Life Corporate Investment Proposition Passive Plus Funds Report Q2 2013

Our Corporate Investment Proposition is made up of a family of carefully constructed risk-based fund of fund portfolios, which offer clients a choice of active and passive investment strategies across five risk levels.

They are designed to help clients achieve the right balance between risk and reward by offering sufficient choice to meet different levels of risk appetite; and providing a risk based QWPS default solution.

Generally, higher risk equates to a greater potential return, whilst lower risk equates to a lower potential return. The strategic asset allocation is set using a 10 year view so the proportion of assets (for example equities or bonds) within each fund is not expected to significantly change in the short term

The funds are designed to help employers and their advisers demonstrate adherence to the IGG investment governance principles for DC schemes as shown below:

Clear roles and responsibilities - Solutions provided and governed by Standard Life and Standard Life Investments

Effective decision making - Robust strategic asset allocation, tactical asset allocation and fund selection processes

Appropriate investment options - Range of risk based options and investment styles to suit different risk attitudes

Appropriate default strategy - Risk based lifestyle options

Effective performance assessment - Performance reporting with clear investment objectives with ongoing review and governance at a fund and solution level

Clear and relevant communication - Factsheets (including performance) and customer fund guides

Choice of Investment StyleStandard Life Passive Plus Funds –a lower cost option investing mainly in tracker funds.Designed to offer a lower-cost investment

solution, the Passive Plus funds invest in a carefully-selected portfolio that is mainly made up of tracker funds from Vanguard. For more specialist areas, we have included actively managed Standard Life Investments funds: the Global Absolute Return Strategies Fund (GARS), as well as commercial property and high yield bond funds.

Standard Life Active Plus Funds - an actively-managed and competitively priced option that invests in funds managed by Standard Life Investments. Designed to offer a competitively priced actively managed investment solution, the Active Plus funds are diversified, multi-asset portfolios investing in a range of funds actively managed by Standard Life Investments, one of Europe’s leading investment managers, including Global Absolute Return Strategies Fund (GARS), as well as commercial property and high yield bond funds. The investment process for the funds’ strategic asset allocations is the same as for the Passive Plus range however has the additional benefit of tactical asset allocation, which aims to take advantage of shorter-term investment opportunities. Tactical asset allocation is carried out by the Multi-Asset Investing Team.

Standard Life Investments MyFolio Managed Funds – an actively-managed, higher alpha option that invests mainly in funds managed by Standard Life Investments. Standard Life MyFolio Managed Funds mainly invests in Standard Life Investments funds, with the manager having the ability to select alternative investments from the rest of the market. The MyFolio Managed Fund suit includes allocations to Absolute Return Funds which offer a different expected return profile to traditional asset classes and as such provide further diversification benefits to the Funds. 20% of the growth and 10% of defensive assets within each Fund have been replaced with the Absolute Return Funds. The funds also benefit from Tactical Asset Allocation carried out by the Multi-Asset Investing Team.

You can find out more about our Corporate Investment Proposition, including our fund governance processes, at www.workbenefitszone.com

Corporate Investment Proposition

Contents

1 Environment and Activity

2 Risk

3 Performance


1 Corporate Investment Proposition Passive Plus Funds Report

Environment and Activity

EnvironmentGlobal equity markets experienced a volatile quarter because of concerns that the US Federal Reserve might begin tapering its stimulus policies earlier than investors had previously anticipated. The resulting uncertainty drove a sell-off from late May onwards, with sharp corrections as a result of the spike in investor risk aversion. Many equity markets therefore registered disappointing returns over the quarter as a whole, with strong gains in April and much of May offset by subsequent profit-taking. US and Japanese equities ended the quarter in positive territory.

Government bond markets were volatile during the quarter, with central bank policies leading to sharp moves. A significant stimulus programme aimed at boosting the Japanese economy initially pushed all bond markets higher. However, this was not sustained as comments from US Federal Reserve Chairman Ben Bernanke regarding scaling back stimulus measures triggered a pronounced slide in markets. Some stability was achieved towards the end of the quarter, although investor confidence remained fragile. Corporate bond markets also came under pressure given speculation over a reduction in quantitative easing (QE). Attempts by US Federal Reserve officials to ease anxiety helped restore some calm to markets at the end of the quarter.

UK commercial real estate prices stopped falling during the second quarter and rose marginally towards the end of the period. Rents generally remained flat but an improvement in economic growth over the next couple of years should lead to modest rental growth. Overseas investors were once again a key support, although there was also demand from domestic investors, particularly in the more liquid markets such as Central London offices. The gap in performance between the north and south therefore also continued over the quarter, as did investor preference for prime and good secondary assets versus poor quality secondary assets.

ActivityStrategic Asset AllocationThe Strategic Asset Allocation (SAA) for each of the Passive Plus funds is reviewed every quarter, with the aim of ensuring that the best long-term interests of investors continue to be met. Following the most recent review, no changes were made to the SAA model.

Changes to underlying fundsAs part of our on-going governance we have reviewed the underlying funds across all five risk levels. There were no changes made to the underlying funds over the quarter.



Unlike traditional managed funds, which aim to outperform the peer group, the risk based funds do not have a specific performance benchmark. Instead the strategic asset allocations aim to provide the maximum expected return for a given level of risk over the 10 year time horizon.

To ensure the funds continue to perform in line with customer expectations, we feel it is important to report on both the risk and return characteristics of the funds; not just for each fund in isolation, but as a range.

As stated in the Q1 2013 report, the information available to demonstrate the risk characteristics of the funds has been reviewed and as the funds have now been in existence for 15 months, there is sufficient data available to calculate the volatility.

The chart below shows the volatility (standard deviation) of each of the five funds within the Passive Plus range since their launch in March 2012. The volatility of the FTSE* All Share Index has been provided for reference only, this is not the benchmark for any of the funds.

Risk

Passive Plus Funds

Fund Volatility

0 2 4 6 8 10 12 14

Passive Plus I

Passive Plus II

Passive Plus III

Passive Plus IV

Passive Plus V

FTSE All Share

%

Source: Standard Life Investments, Thomson Reuters DatastreamAll figures are calculated in pounds sterling (£), with income reinvested.Volatility figures are based on prices on a bid-bid basis, net of charges, and have been annualised using weekly data from launch in March 2012 to 30 June 2013.

*“FTSE®” is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE International Limited (“FTSE”) under licence. The FTSE All Share Index is calculated solely by FTSE. FTSE does not sponsor, endorse or promote this product and is not in any way connected to it and does not accept any liability in relation to its issue, operation and trading. All copyright in the index values and constituent list vests in FTSE. FTSE All Share Index is a trade mark of FTSE.



The commentary below represents performance across the range of Passive Plus funds (ratings I - V). As these funds are predominantly managed passively, the commentary refers to the active components of each fund, namely absolute return, commercial property and high yield bonds.

Given heightened volatility within markets that resulted in meagre returns, it is not surprising to see negative returns across the range of Passive Plus funds. The majority of funds underperformed their comparative index over the quarter. However, we should point out that these funds are not measured against any benchmarks and once fees are taken into consideration, it would not be unusual to see a degree of underperformance.

The passive components of the Passive Plus Funds use tracker funds managed by Vanguard Asset Management. When analysing the individual performance of each component, it is worth bearing in mind that differences between the fund performance and the underlying index can occur because of timing differences and the inherent process of pricing external funds. Over short periods this can lead to what looks like increased tracking errors (the degree to which the funds deviate from their benchmark indices) but over the medium term these differences will even out.

Within the active components, the absolute return component (via the GARS portfolio) delivered a negative return over the quarter, although its losses were much less than those experienced in global equity markets. Our equity holdings detracted from performance, particularly emerging market equities (Russia and China). However, this was offset to an extent by our strategies favouring US technology stocks versus US small-cap stocks and Taiwanese equities, as well as those strategies that favoured a stronger US dollar.

The high yield portfolio delivered a small negative return over the quarter. During April, the holding in Brazilian natural gas and oil company OGX weighed on performance given concerns over liquidity and poor production figures. Later in the period, positions in Walter Energy and Fiat were detrimental to returns.

In the property component, our Central London portfolio (offices and our retail holding in Oxford Street) drove returns, as did our retail warehouse and industrial assets. Asset management and letting activity also delivered positive capital value growth in each of these subsectors. However, our provincial office portfolio delivered a negative total return over the quarter.

Performance



Performance Comparison as at 30 June 2013

Figures quoted are calculated, net of fees, on an offer to offer basis over periods to 30 June 2013, with gross income reinvested. The Comparative Index shown makes no allowance for charges.

-4

-2

0

2

4

6

8

10

Fund Comparative Index

-2.41 -2.07

3.57 3.62

1.52 1.741.91 2.19

Q3 2012 Q4 2012 Q1 2013 Q2 2013 1 Year

4.585.50

4.905.91

Since Inception

p.a.** 20/02/2012

Source: Standard Life Investments (Fund) and FactSet (Comparative Index)Note: Past performance is not a guide to future performance and the value of units can go down as well as up.The Comparative Index is made up of representative indices based on the strategic asset allocation of the fund.FactSet is a registered trademark of FactSet Research Systems Inc.

Composition by Fund Exposure

Fund %

Defensive Assets

SL Vanguard UK Investment Grade Bond Index Pension Fund 36.0Standard Life Money Market Pension Fund 17.3SL Vanguard UK Government Bond Index Pension Fund 11.3SL Vanguard UK Inflation Linked Gilt Index Pension Fund 10.7

Growth Assets

SL Vanguard FTSE UK All Share Index Pension Fund 6.6SL Vanguard US Equity Pension Fund 5.4SL SLI Global Absolute Return Strategies Pension Fund 4.9Standard Life Property Pension Fund 3.0SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 1.2SL SLI Global High Yield Bond Pension Fund 1.2SL Vanguard Japan Stock Index Pension Fund 0.9SL Vanguard Emerging Markets Stock Index Pension Fund 0.9SL Vanguard Pacific ex Japan Stock Index Pension Fund 0.6

FTSE International Limited (“FTSE”) does not sponsor, endorse, or promote these funds. All copyright in the index values and constituent list vests in FTSE. Standard Life group has obtained a licence from FTSE to use such copyright in the creation of this fund. “FTSE®” is a trade mark jointly owned by the London Stock Exchange Plc and The Financial Times Limited and is used by FTSE under licence.

Standard Life Passive Plus I Pension Fund



Standard Life Passive Plus II Pension Fund



-4

-2

0

2

4

6

8

10


-2.07 -1.68

4.82 4.80

1.97 2.122.86 2.85

Q3 2012 Q4 2012 Q1 2013 Q2 2013 1 Year

7.678.21

6.377.16

Since Inception

p.a.** 20/02/2012



Fund %

Defensive Assets

SL Vanguard UK Investment Grade Bond Index Pension Fund 31.9Standard Life Money Market Pension Fund 10.8SL Vanguard UK Inflation Linked Gilt Index Pension Fund 9.0SL Vanguard UK Government Bond Index Pension Fund 7.6

Growth Assets

SL Vanguard FTSE UK All Share Index Pension Fund 10.9SL Vanguard US Equity Pension Fund 9.0SL SLI Global Absolute Return Strategies Pension Fund 8.1Standard Life Property Pension Fund 4.8SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 2.0SL Vanguard Japan Stock Index Pension Fund 1.6SL SLI Global High Yield Bond Pension Fund 1.6SL Vanguard Emerging Markets Stock Index Pension Fund 1.6SL Vanguard Pacific ex Japan Stock Index Pension Fund 1.1




Standard Life Passive Plus III Pension Fund



-4

-2

0

2

4

6

8

10

12


-1.27 -0.77

5.86 5.75

2.16 2.213.71 3.27

Q3 2012 Q4 2012 Q1 2013 Q2 2013 1 Year

10.74 10.77

7.28 7.76

Since Inception

p.a.** 20/02/2012



Fund %

Defensive Assets

SL Vanguard UK Investment Grade Bond Index Pension Fund 23.9Standard Life Money Market Pension Fund 10.4

Growth Assets

SL Vanguard FTSE UK All Share Index Pension Fund 17.2SL SLI Global Absolute Return Strategies Pension Fund 13.1SL Vanguard US Equity Pension Fund 12.8Standard Life Property Pension Fund 8.0SL Vanguard Emerging Markets Stock Index Pension Fund 5.3SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 2.9SL SLI Global High Yield Bond Pension Fund 2.4SL Vanguard Japan Stock Index Pension Fund 2.2SL Vanguard Pacific ex Japan Stock Index Pension Fund 1.8




Standard Life Passive Plus IV Pension Fund



-4

-2

0

2

4

6

8

10

12

14


-1.01 -0.40

7.60 7.36

2.35 2.353.97

3.13

Q3 2012 Q4 2012 Q1 2013 Q2 2013 1 Year

13.34 12.86

7.90 8.12

Since Inception

p.a.** 20/02/2012



Fund %

Defensive Assets

SL Vanguard UK Investment Grade Bond Index Pension Fund 7.9Standard Life Money Market Pension Fund 3.4

Growth Assets

SL Vanguard FTSE UK All Share Index Pension Fund 23.6SL SLI Global Absolute Return Strategies Pension Fund 17.7SL Vanguard US Equity Pension Fund 16.9Standard Life Property Pension Fund 10.4SL Vanguard Emerging Markets Stock Index Pension Fund 7.2SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 3.9SL SLI Global High Yield Bond Pension Fund 3.6SL Vanguard Japan Stock Index Pension Fund 3.0SL Vanguard Pacific ex Japan Stock Index Pension Fund 2.4




Standard Life Passive Plus V Pension Fund



-4-202468

1012141618


-0.79 -0.17

9.60 9.29

2.47 2.474.47

3.31

Q3 2012 Q4 2012 Q1 2013 Q2 2013 1 Year

16.41 15.50

9.27 9.30

Since Inception

p.a.** 20/02/2012



Fund %

Defensive Assets Standard Life Money Market Pension Fund 1.0

Growth Assets

SL Vanguard FTSE UK All Share Index Pension Fund 26.4SL Vanguard US Equity Pension Fund 24.0SL SLI Global Absolute Return Strategies Pension Fund 19.8SL Vanguard Emerging Markets Stock Index Pension Fund 8.0SL Vanguard FTSE Developed Europe ex UK Equity Index Pension Fund 5.5SL Vanguard Japan Stock Index Pension Fund 4.2Standard Life Property Pension Fund 4.0SL SLI Global High Yield Bond Pension Fund 4.0SL Vanguard Pacific ex Japan Stock Index Pension Fund 3.1


0813

Standard Life Assurance Limited, registered in Scotland (SC286833), Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH, authorised and regulated by the Financial Services Authority. 0131 225 2552. Calls may be recorded/monitored. www.standardlife.co.uk © 2013 Standard Life, images reproduced under licence

Find out more For more information speak to your usualStandard Life contact.

www.workbenefitszone.com

Investment Report - Standard Lifelibrary.adviserzone.com/PassivePlusReport.pdfStandard Life Passive...

Documents

Transcript of Investment Report - Standard Lifelibrary.adviserzone.com/PassivePlusReport.pdfStandard Life Passive...