RNPFN Managed Growth Fund management and performance report

Whilst strong performance was generated across all regions, two in particular stood out: the Japan equity asset class outperformed the benchmark by 15.2% whilst the Emerging Markets equity assets also outperformed by 15.1%, (both in Sterling terms). Within the Global Emerging Markets portfolio, almost half the outperformance was due to Chinese stock selection where technology and healthcare were the dominant success stories. 

In Japan, Technology and Industrials stocks drove the outperformance. The fund also benefitted from opportunities after the March 2020 lows to purchase quality stocks at attractive valuations that were previously considered too expensive.

US equities returned 29.3% for the year against the benchmark return of 25.9% with Technology stocks a dominant success story during 2020. Profits in several stocks were taken to allow investment in assets that subsequently benefitted from the buoyant vaccine news. These changes were designed to take advantage of the reflation/recovery stage now being entered.

The European equity portfolio delivered strong outperformance against its benchmark (the assets returned 11.4% whereas the benchmark returned 10.3%) during the year. Stock selection accounted for all the outperformance led by Technology and Industrials. 

UK equity assets (-9.7%) just outperformed the FTSE All Share (-9.8%) over the year helped by stock selection within Industrials. Overall, the UK equity market lagged behind all major equity markets during 2020. Fears of a no-deal Brexit hampered the market throughout the year. The market also suffered for its relatively high exposure to energy-related stocks.

The UK corporate-bond portfolio returned 10.2% for the year, outperforming its benchmark, which returned 8.6%. The good performance came from the majority holding in medium and long-dated bonds, which outperformed short-dated bonds during 2020. Stock selection was the main driver for the funds outperformance. 

The diversification into Developed Markets bonds during 2020 also proved positive with returns outperforming the benchmark by 0.5%.

The benefit of the funds exposure to UK Gilts was most noticeable during quarter 1, where the assets offset equity weakness within the fund. Their resilient characteristics resulted in stable performance throughout the year. The return of 9.0% was slightly above the benchmark of 8.6%.

Change to the strategic asset allocation

LV= regularly reviews the investment strategy (also called the Strategic Asset Allocation or SAA) of the fund. Drawing on the strong expertise of Columbia Threadneedle Investments, as well as various economists and investment banks, changes to the SAA were proposed. Following extensive review and challenge to ensure the strategy was fit for purpose, the new SAA was approved by the LV= Investment Committee.

The aim of this SAA review was to improve the expected annual return of the funds whilst keeping broadly the same overall level of investment risk. The new investment strategy is to spread assets more globally to ensure the funds are not severely impacted by volatility in any one country. To help with this new investments have been introduced:

• US Treasuries (also called US Government Bonds). To diversify Sovereign Bond holdings.
• Overseas Corporate Bonds. Primarily US and European Corporate Bonds which give strong returns and diversify exposure to credit risk.
• High Yield Bonds. An increase in the exposure to such assets.
• Dynamic Real Return (a fund which invests in a variety of asset types aiming to deliver consistent performance, even in times of market volatility).  An increase in the exposure to such assets.

The changes were completed during June of 2020. The fund objectives and the level of investment risk of the fund remain broadly unchanged.