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FlEXIBLE GUARANTEE BOND INVESTMENT REPORT

Fund options for flexible guarantee products, management and performance report

Report overview

Before we get started...

  • This information does not constitute investment advice and we recommend that you speak to a suitably qualified financial adviser before making any investment decision based upon this, or any other information.
  • This report provides information on the performance of your Flexible Guarantee Investment, for the period 1 January 2018 to 31 December 2018.

Market and Economic Review

This review is based on information and commentary provided by Columbia Threadneedle Investments.

Investment returns from higher risk investments were weak and volatile during 2018. Returns from global equities (as measured by the MSCI All-Country World index) were -7.2% in local currency terms; this was dampened as the pound weakened against overseas currencies resulting in a slightly improved return of -3.3%.

UK corporate bonds generally held up better, whilst core government bonds had mixed fortunes: US Treasury and UK Gilt yields rose while German Bund yields fell. 

With the persistent political uncertainty throughout most of 2018, investors tended to prefer to focus on the still-robust corporate and macro (where capital is spread over various assets, markets and countries) investments. This was especially prominent in the US, where tax cuts boosted an already-strong economy.

From the autumn onwards, however, markets were increasingly rattled by a range of factors. In addition to an overarching concern about tightening monetary conditions, these included rising political uncertainty in Europe and in the US, President Trump’s tariff war against China and other US trading partners, and, related to the latter, evidence of economic deceleration in the eurozone and China. Higher risk investments suffered in this environment and had a very weak final quarter.
The US Federal Reserve raised rates four times over the year but further rate rises in 2019 are unlikely.  In December the European Central Bank finally ended its quantitative easing bond-buying programme, though any interest rate hikes still appear some way off. Despite ongoing Brexit uncertainty, the Bank of England raised rates once, in August, as the economy picked up after a weather-hit first quarter.

Equities in Europe, Asia and Japan all suffered double-digit losses in local terms, and the UK and emerging markets were not far behind. US equities fell less heavily over the year, due in part to earlier optimism about the tax cuts and very strong US corporate earnings.

The UK commercial property market slowed whilst Brexit-related uncertainty continued. The IPD (Investment Property Databank) Monthly index returned 7.3% for 2018, compared with 11.0% the previous year.
 

Unit price and performance of each fund option available

Your individual statement will show you the number of units, the unit price, the value of your investment and your chosen fund option at your investment’s last anniversary.  Find the current unit price of your investment. This information should be read alongside your Bond Conditions and Key Features document (for bonds started before 1 January 2018), or Key Information Document and Supplementary Information Document (for bonds started after 1 January 2018). If your investment is in the Flexible Guarantee Funds within our pension wrapper it should be read alongside our Flexible Transitions Account Key Features document and Terms and Conditions.

You need to be aware that in each fund option your investment can go down as well as up. The higher the amount invested in equities (also known as stocks and shares), the more frequently this will happen and the more significant the changes in value are likely to be.
 

Cautious Series 2

This fund is designed to provide long term steady growth together with a low level of investment risk. The fund invests, either directly or indirectly, in a diversified portfolio of fixed interest securities, equities, property, cash and other related instruments.

The first table below shows the unit prices for the Flexible Guarantee Bond, Flexible Guarantee Bond Series 2, Flexible Guarantee Bond Series 3 and Flexi Guarantee Plan. The second table shows the unit prices for the Flexible Guarantee Funds and Flexible Guarantee Funds Series 2. Separate unit prices are needed for Flexible Guarantee Funds because of the different tax treatment for pension investments.
 

Flexible Guarantee Bond (all series) and Flexi Guarantee Plan

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
31 December
2013
Unit price* 164.1p 161.7p 154.6p 146.4p 138.2p 130.3p
Growth (%)  for the 12 months to date shown 1.5% 4.6% 5.6% 5.9% 6.1% 5.9%
Total percentage growth of unit price from 1 January 2014 to 31 December 2018 (5 years)
25.9%
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2018
64.1%

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
31 December
2013
Unit price* 164.1p 161.7p 154.6p 146.4p 138.2p 130.3p
Growth (%)  for the 12 months to date shown 1.5% 4.6% 5.6% 5.9% 6.1% 5.9%
Total percentage growth of unit price from 1 January 2014 to 31 December 2018 (5 years)
25.9%
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2018
64.1%

Flexible Guarantee Funds and Flexible Guarantee Funds Series 2

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
3 July 2014 (Launch date)
Unit price** 125.0p 122.9p 116.7p 109.5p 106.0p 100.0p
Growth (%)  for the 12 months to date shown 1.7% 5.3% 6.6% 3.3% 6.1% n/a
Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2018 
25.0%

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
3 July 2014 (Launch date)
Unit price** 125.0p 122.9p 116.7p 109.5p 106.0p 100.0p
Growth (%)  for the 12 months to date shown 1.7% 5.3% 6.6% 3.3% 6.1% n/a
Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2018 
25.0%

Balanced Series 2

This fund is designed to provide long term moderate growth together with a low to medium level of investment risk. The fund invests, either directly or indirectly, in a diversified portfolio of fixed interest securities, equities, property, cash and other related instruments.

The first table below shows the unit prices for the Flexible Guarantee Bond, Flexible Guarantee Bond Series 2, Flexible Guarantee Bond Series 3 and Flexi Guarantee Plan. The second table shows the unit prices for the Flexible Guarantee Funds and Flexible Guarantee Funds Series 2. The differences in pricing between these products are due to the variation in taxation between funds invested with and without a pension wrapper.

Flexible Guarantee Bond (all series) and Flexi Guarantee Plan

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
31 December
2013
Unit price* 177.3p 173.7p 162.6p 155.2p 144.1p 134.6p
Growth (%)  for the 12 months to date shown 2.1% 6.8% 4.8% 7.7% 7.1% 8.9%
Total percentage growth of unit price from 1 January 2014 to 31 December 2018 (5 years)
31.7%
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2018 77.3%
Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
31 December
2013
Unit price* 177.3p 173.7p 162.6p 155.2p 144.1p 134.6p
Growth (%)  for the 12 months to date shown 2.1% 6.8% 4.8% 7.7% 7.1% 8.9%
Total percentage growth of unit price from 1 January 2014 to 31 December 2018 (5 years)
31.7%
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2018 77.3%

Flexible Guarantee Funds and Flexible Guarantee Funds Series 2

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
3 July 2014 (Launch date)
Unit price** 129.8p 126.9p 116.9p 111.1p 105.6p 100.0p
Growth (%)  for the 12 months to date shown 2.3% 8.6% 5.2% 5.2% 5.6% n/a

Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2018 

29.8%

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
3 July 2014 (Launch date)
Unit price** 129.8p 126.9p 116.9p 111.1p 105.6p 100.0p
Growth (%)  for the 12 months to date shown 2.3% 8.6% 5.2% 5.2% 5.6% n/a

Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2018 

29.8%

Managed Growth

This fund is designed to provide long term growth together with a medium level of investment risk. The fund invests, either directly or indirectly, in a diversified portfolio of fixed interest securities, equities, property, cash and other related instruments.

The first table below shows the unit prices for the Flexible Guarantee Bond, Flexible Guarantee Bond Series 2, Flexible Guarantee Bond Series 3 and Flexi Guarantee Plan. The second table shows the unit prices for the Flexible Guarantee Funds and Flexible Guarantee Funds Series 2. The differences in pricing between these products are due to the variation in taxation between funds invested with and without a pension wrapper.

Flexible Guarantee Bond (all Series) and Flexi Guarantee Plan

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
31 December
2013
Unit price* 188.0p 184.0p 169.7p 163.3p 149.2p 138.8p
Growth (%)  for the 12 months to date shown 2.2% 8.4% 3.9% 9.5% 7.5% 11.5%
Total percentage growth of unit price from 1 January 2014 to 31 December 2018 (5 years)
35.4%
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2018 88.0%
Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
31 December
2013
Unit price* 188.0p 184.0p 169.7p 163.3p 149.2p 138.8p
Growth (%)  for the 12 months to date shown 2.2% 8.4% 3.9% 9.5% 7.5% 11.5%
Total percentage growth of unit price from 1 January 2014 to 31 December 2018 (5 years)
35.4%
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2018 88.0%

Flexible Guarantee Funds and Flexible Guarantee Funds Series 2

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
3 July 2014 (Launch date)
Unit price** 132.8p 129.7p 116.9p 112.4p 105.0p 100.0p
Growth (%)  for the 12 months to date shown 2.4% 10.4% 4.0% 7.0% 5.0% n/a
Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2018  32.8%

Unit price date 31 December
2018
31 December
2017 
 31 December
2016
31 December
2015
31 December
2014
3 July 2014 (Launch date)
Unit price** 132.8p 129.7p 116.9p 112.4p 105.0p 100.0p
Growth (%)  for the 12 months to date shown 2.4% 10.4% 4.0% 7.0% 5.0% n/a
Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2018  32.8%

Performance review

During 2018 the investment returns of all Flexible Guarantee funds underperformed against their respective benchmarks. Property returns played a significant part of this underperformance. Asset allocation was also unfavourable over the year. Increased investment in most equity regions hindered performance, as did the reduced investment in fixed income.

Within the property portfolio as a result of more money being taken out of the fund than invested into it, the way shares were valued was temporarily changed in December from an offer-price to a bid-price basis. This ensures that investors who leave the fund pay their fair share of the additional expenses incurred, should sales be required to meet those redemptions. This effectively protects the remaining investors. The impact to the share price (and therefore performance) was around -6.5%. 

The strategy of the asset manager to purchase shares in high quality companies that were expected to grow faltered in the last quarter. The value of these shares fell, whilst the shares of lower risk companies fared much better. 

This particularly hurt the UK equities portfolio with the choice of investment in both materials and financials. 

Within the US equity portfolio, positive returns in industrials, IT and financials was outweighed by negative selection in healthcare, materials and communication services. 

Returns from Emerging markets equities were weakened, mainly due to negative investments in the materials, technology, communication services and consumer staples sector. These offset the positive selections in the consumer discretionary and real estate sectors. On a country basis, investments in Russia, China, Brazil and India all had a negative impact on returns.

In Japan, a trend towards lower risk investments and falling bond yields lead to an outperformance of cheaper, defensive stocks (those providing more stable returns). In terms of return the reduced investment in real estate and zero investment in utilities detracted from the performance over the year.

Market and Economic Outlook

This outlook is based on information and commentary provided by Columbia Threadneedle Investments.

Recent years have seen prices consistently rising, this is often known as a ‘bull market’. Although this cycle won’t continue indefinitely it does not appear that the end is imminent. The warning signs which would suggest a sharp turnaround are not all flashing red. Instead it looks as though this market will continue to extend and redefine, with low interest rates, low inflation and ongoing moderate growth. 

Over 2019 US growth should slow as the impact of fiscal stimulus reduces. Inflation should remain under control and equity valuations continue to be fair, leaving a generally reasonable environment for investors.

The expectation is that global equity markets will make gentle positive progress, corporate profits will continue growing, companies will behave in an equity-friendly way with their valuations remaining supportive.
While 2018 was not a great year for bonds, 2019 looks set to produce more attractive outcomes for those who can navigate highly divergent monetary policy and credit cycles.

We are watchful of the amount of debt among US companies, compared to European. However, there should be opportunities for returns within specific industries and regions. The energy, telecoms, and food and beverage industries have previously increased borrowing but now have a number of companies reducing their debt levels.
 

Columbia Threadneedle Investments

  • Since 1 November 2011 the asset management of our funds has been undertaken on our behalf by Columbia Threadneedle Investments. Columbia Threadneedle is responsible for the day-to-day management of the assets within investment guidelines set by LV=.
  • Columbia Threadneedle is a leading international investment manager that manages £338bn of assets (as at 31 December 2018), investing on behalf of individuals, pension funds, insurers and corporations. Columbia Threadneedle is the global asset management group of Ameriprise Financial, a leading US-based financial services provider. Columbia Threadneedle’s website address is columbiathreadneedle.co.uk.