10
11
Market overview – to 30 September 2013
Equity markets generally produced positive returns
over the six months to 30 September 2013 with
particular strength coming from Japan and Europe.
An announcement in May from the US Federal
Reserve Chairman, Ben Bernanke, suggesting that
the US third round of quantitative easing could
come to an end sooner than anticipated, caused
a fall in global markets over concerns that a likely
loss of cheap funding could hold back growth.
However markets generally recovered on the back of
improving global economic data to end the period
in positive territory.
Bond prices were also negatively impacted by
Bernanke’s announcement in May as investors
digested the possibility of interest rates moving
higher. UK corporate bonds were somewhat more
resilient as the rise in gilt yields was offset to a
certain extent by a reduction in credit spreads (ie the
additional amount a corporate bond yields relative to
an equivalent gilt). This can be explained by the fact
that interest rates are only likely to rise in response to
a more robust corporate environment.
The majority of market experts continue to believe
that prospects for global economic growth have
improved, driven by improving fundamentals in
the US, pro-growth policies in Japan, and a slight
relaxation of austerity in the Eurozone. However,
investors should continue to watch out for the
impact of tapering of US monetary easing, the
slowing of Chinese growth and the ongoing debt
challenges within Europe.
Interest rates and gilt yields are currently around
all-time lows and the general view is that they will
remain relatively low for the immediate future as the
UK retains its “safe haven” status compared to other
countries which maintains a high level of demand
for gilts.
Changes to the Fund’s investments
The Trustee has made some key changes to the
Fund’s investment manager line-up over the
year. In October 2012 an initial investment was
made into an inflation linked fund managed by
M&G Investments. This fund not only provides
inflation protection and interest rate protection
but also targets a good long-term return and so
is very much in line with the Fund’s objective to
gradually de-risk the investment strategy to help
protect members’ benefits. State Street’s US equity
mandate was terminated in December and assets
were used to fund an emerging market multi-
asset mandate managed by Capital International.
At the end of March 2013, the Trustee terminated
the Fund’s global equity mandate managed by
Oldfield Partners and at the end of July 2013, the
Trustee terminated the Fund’s unrestrained fixed
income mandate managed by Bluecrest Capital
Management LLP.
Investing in the success of the Fund
Over the next two pages the investment advisers for the Fund, Lane, Clark & Peacock (LCP), take
some time to explain what has been happening in the investment markets over the financial year to
31 March 2013 and up until the date of going to print. Alongside this, they have also provided an
overview of how the Fund has been performing over the past year.
Market Overview – to 31 March 2013
Over the past twelve months, there have been signs of global growth picking up, notably in China and the
US, although the Eurozone continues to struggle to emerge from recession. However, concerns surrounding
the break-up of the Eurozone abated, following a pivotal speech by the President of the European Central
Bank, Mario Draghi, who promised to do ‘whatever it takes’ to preserve the currency union. However, the
nature of the Cypriot bail-out has created Eurozone fears of a new sort by effectively ‘devaluing’ Cypriot Euros.
Despite these ongoing concerns, the world looks like a brighter place than 12 months ago, from an
investment perspective, and gains in investment markets have reflected this growing optimism. It has been a
good year.
This market environment has been beneficial for the Fund with total asset returns of 13.5% over the year.
Most of this has come from the high level investment strategy set by the Trustee which resulted in a
benchmark return of 12.7%, over the twelve months to 31 March 2013. The balancing 0.8% was added by
the appointed investment managers adding value. Strong returns came from both the Fund’s equity and
bond assets, with the majority of the funds generating double digit returns.
Equities 31.7%
Bonds 48.3%
Alternative mandates 20.0%
Asset allocation as at 31 March 2013
Equity markets:
Equities generally performed
well, reaping the benefits of cheap money and
a somewhat better economic outlook. The top
performing region was the US, delivering 20.1%
in Sterling terms. Returns reflected encouraging
economic data as well as the fact that the turn of
the year ‘fiscal cliff’ – a simultaneous increase in
taxes and decrease in government spending - did
not (yet) prove as bad as investors feared.
Bond markets:
In relative terms, fixed interest
gilts performed poorly against both equities and
their corporate bond counterparts, as investors
sought out credit exposure rather than buying
government bonds. In contrast, index-linked
gilts performed relatively well, reflecting the
gradual rise in inflation expectations over the
period.
Please visit
/
batpensions
or contact the BAT Pensions
Administration Team if you would like a
copy of the full Annual Report and Accounts
to 31 March 2013.
Did you know?
The overall investment return for the
Fund over the three years to 31 March 2013
was
10.2%
p.a.
£
Did you know?
Net returns on DB Section investments
were
£299
million in the year to
31 March 2013.
