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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 2019 to 31 December 2019.

Market and Economic Review

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

Global equities bounced back strongly after a weak 2018, outperforming bonds and commodities, which also delivered positive returns in aggregate. For corporate bond markets, the effect of falling core bond yields was amplified by significantly tighter credit spreads. Strength in the pound, particularly in the fourth quarter (Q4), eroded sterling returns from overseas assets. The MSCI AC World index, for example, returned 26.9% in local-currency terms and 22.4% in sterling.

Three broadly overlapping factors were largely responsible for the direction of markets in 2019: the ongoing US-China trade war, signs of deterioration in the global economy, and – most importantly – a sudden dovish shift in monetary policy by many central banks but especially the US Federal Reserve. Impeachment proceedings against President Trump garnered much news coverage but had little market impact, since the process was not expected to succeed in removing him from office.

Trade tensions between the US and China waxed and waned with corresponding effects on risk appetite. A sharp escalation of hostilities in August, for example, triggered a rally in core bonds and a sell-off in equities, but hopes for an end to the dispute drove strong performance towards the end of the year. In mid-December, the US and China announced a phase-one agreement. Among other concessions, both sides agreed to waive tariffs against the other that were due to kick in two days later. Core yields rose in response while credit spreads tightened.

On the economic front, the global manufacturing sector has been a primary casualty of the trade war. JPMorgan’s keenly watched Global Manufacturing Purchasing Managers’ Index fell below 50 (indicating contraction) in May, where it remained until November. Alongside the trade truce, the sector’s return to growth territory provided support for risk assets in the fourth quarter.

The US economy held up relatively well over the year, supported by robust consumer spending, but German GDP – which is manufacturing-heavy and highly geared to the global trade – contracted in the second quarter and only narrowly escaped recession in the third.

Having previously pencilled in two US rate hikes for 2019, Fed policymakers signalled a more ‘patient’ approach in January; by March they had made clear that they did not expect to raise rates in the remainder of the year. This volte-face set the scene for a dovish pivot by central banks globally, and a rally in both equities and bonds.

The Fed delivered its first interest-rate cut (of three) in July, sparking a wave of accommodative moves in emerging markets. Against soft economic data, the European Central Bank (ECB) eventually followed suit in September, cutting the deposit rate to a record low of -0.5%, while also restarting its bond-buying programme.

Brexit-related uncertainty saw UK equities and sterling credit underperform global averages. Nevertheless, political developments in the final months of 2019 – notably
the Prime Minister’s renegotiation of the EU withdrawal agreement and his subsequent general election victory – brought much greater clarity around Brexit. Sterling rallied in response, as did domestically focused equities.

In fixed-income markets, yields on 10-year US, German and UK government bonds fell 77 basis points (bps), 43 bps and 46 bps respectively in 2019. The gilt market, as measured by the FTSE Actuaries UK Gilts All-Maturities index, returned 6.9% for the period. Global investment grade (IG) credit spreads narrowed by around 56 bps, while US and European high-yield spreads respectively tightened by 173 bps and 201 bps.

In sterling terms, all the main equity regions delivered double-digit gains. The US did best: the S&P 500 returned 26.4%, buoyed by easing Fed policy and corporate results that beat analysts’ lowered expectations. Next strongest was the FTSE Europe ex UK (20.4%) followed by the UK’s FTSE All-Share (19.2%). Further behind were MSCI’s main indices for Japan (15.4%), Asia Pacific ex Japan (14.9%) and emerging markets (14.3%), as trade-war fears capped gains.

 

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 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 
2019 
31 December
2018
31 December
2017 
31 December
2016
31 December 
2015
Unit price* 172.3p  164.1p 161.7p 154.6p 146.4p 
Growth (%)  for the 12 months to date shown 5.0%  1.5% 4.6% 5.6% 5.9%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)
24.67%
Total percentage growth of unit price from 1 January 2010 to 31 December 2019 (10 years)  67.03% 
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2019
72.3%

Unit price date 31 December 
2019 
31 December
2018
31 December
2017 
31 December
2016
31 December 
2015
Unit price* 172.3p  164.1p 161.7p 154.6p 146.4p 
Growth (%)  for the 12 months to date shown 5.0%  1.5% 4.6% 5.6% 5.9%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)
24.67%
Total percentage growth of unit price from 1 January 2010 to 31 December 2019 (10 years)  67.03% 
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2019
72.3%

Flexible Guarantee Funds and Flexible Guarantee Funds Series 2

Unit price date 31 December 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price** 132.7p  125.0p 122.9p 116.7p 109.5p
Growth (%)  for the 12 months to date shown 6.2%  1.7% 5.3% 6.6% 3.3%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)  29.65% 
Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2019
32.7%

Unit price date 31 December 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price** 132.7p  125.0p 122.9p 116.7p 109.5p
Growth (%)  for the 12 months to date shown 6.2%  1.7% 5.3% 6.6% 3.3%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)  29.65% 
Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2019
32.7%

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 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 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price* 185.7p  177.3p 173.7p 162.6p 155.2p
Growth (%)  for the 12 months to date shown 4.7%  2.1% 6.8% 4.8% 7.7%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)
28.87%
Total percentage growth of unit price from 1 January 2010 to 31 December 2019 (10 years)  79.27% 
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2019 85.7%
Unit price date 31 December 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price* 185.7p  177.3p 173.7p 162.6p 155.2p
Growth (%)  for the 12 months to date shown 4.7%  2.1% 6.8% 4.8% 7.7%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)
28.87%
Total percentage growth of unit price from 1 January 2010 to 31 December 2019 (10 years)  79.27% 
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2019 85.7%

Flexible Guarantee Funds and Flexible Guarantee Funds Series 2

Unit price date 31 December 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price** 137.1p  129.8p 126.9p 116.9p 111.1p
Growth (%)  for the 12 months to date shown 5.6%  2.3% 8.6% 5.2% 5.2%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)  34.60% 

Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2019

37.1%

Unit price date 31 December 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price** 137.1p  129.8p 126.9p 116.9p 111.1p
Growth (%)  for the 12 months to date shown 5.6%  2.3% 8.6% 5.2% 5.2%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)  34.60% 

Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2019

37.1%

Managed Growth

This fund is designed to provide long term growth together with a medium level of investment risk. The fund invests 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 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price* 197.0p  188.0p 184.0p 169.7p 163.3p
Growth (%)  for the 12 months to date shown 4.8%  2.2% 8.4% 3.9% 9.5%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)
32.04%
Total percentage growth of unit price from 1 January 2010 to 31 December 2019 (10 years)  89.52% 
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2019 97.0%
Unit price date 31 December 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price* 197.0p  188.0p 184.0p 169.7p 163.3p
Growth (%)  for the 12 months to date shown 4.8%  2.2% 8.4% 3.9% 9.5%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)
32.04%
Total percentage growth of unit price from 1 January 2010 to 31 December 2019 (10 years)  89.52% 
Total percentage growth of unit price from 18 August 2009 (launch date) to 31 December 2019 97.0%

Flexible Guarantee Funds and Flexible Guarantee Funds Series 2

Unit price date 31 December 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price** 140.02p  132.8p 129.7p 116.9p 112.4p
Growth (%)  for the 12 months to date shown 5.6%  2.4% 10.4% 4.0% 7.0%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)  38.42% 
Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2019 40.2%

Unit price date 31 December 
2019
 
31 December
2018
31 December
2017 
 31 December
2016
31 December 
2015
Unit price** 140.02p  132.8p 129.7p 116.9p 112.4p
Growth (%)  for the 12 months to date shown 5.6%  2.4% 10.4% 4.0% 7.0%
Total percentage growth of unit price from 1 January 2015 to 31 December 2019 (5 years)  38.42% 
Total percentage growth of unit price from 3 July 2014 (launch date) to 31 December 2019 40.2%

Performance review

Markets, and in particular equity markets, enjoyed a strong 2019. Three broadly overlapping factors were largely responsible for the direction of markets: the ongoing US-China trade war, signs of deterioration in the global economy, and – most importantly – a sudden dovish shift in monetary policy by most central banks at the start of the year.

Coupled with double digit returns from each equity asset class (in Sterling terms), nearly all equity assets contributed significantly to the outperformance of the Fund against benchmark over the year; Columbia Threadneedle Investment’s performance during 2019 presents a compelling case for their active management approach. The outperformance was primarily driven by strong stock selection decisions by our Fund Manager.

Overseas equity funds - especially in Japan, Asia and Emerging Markets performed very strongly against their agreed benchmarks and against their peers.

The Emerging Markets equity fund was ranked 2nd across their peers, beaten only by Columbia Threadneedle Investment’s own segregated fund (managed for a different client). This portfolio returned above 28.0% in sterling terms while the benchmark returned 14.3%, a relative return (also referred to as alpha) of above 12.4%. Stock selection was positive across most sectors, with picks in financials, healthcare, industrials and technology proving advantageous. On a country basis, stock picking in China, Brazil, Korea and India added the most alpha, followed by those in Thailand.

The Asia Pacific (excluding Japan) equity fund was in the top 8th percentile against its peers. The portfolio returned above 24.7% for the year against a benchmark of 14.9%.

European markets delivered strong gains during 2019, despite bouts of volatility. The portfolio returned over 30.5% in sterling terms, comfortably outperforming the benchmark return of 22.4%. Successful stock selection was the main driver of outperformance with PUMA (sportswear), ASML (semiconductor equipment) and DSV (logistics) the major contributors. Sector positioning was favourable too, especially the overweight positions in technology and industrial sectors.

The Japan equity fund was in the 22nd percentile against peers, returning more than 26.5% during the year, comfortably ahead of the MSCI Japan which returned 18.3%. Stock selection was the main source of outperformance over the year, with picks in technology adding most to relative returns. Holdings in healthcare and real estate were also beneficial. Sector allocation was positive, driven by the overweight in technology whilst not holding utilities.

Of the underlying UK funds, the UK Equity Income Fund and the UK Institutional Fund were ahead of the index, but the UK Select Fund slightly underperformed. In the UK Equity Income Fund and the UK Institutional Fund, sector positioning was positive, largely due to the underweight in energy. Stock selections decisions were marginally detrimental to fund performance. Underweight positions in Consumer Discretionary and Industrials sectors detracted from UK Select Funds performance. Overall, stock selection within the portfolio added value.

US equities delivered a strong return during 2019, supported by robust corporate earnings, the Fed’s dovish policy shift and optimism about a resolution of the trade war with China. Positive stock selection in technology and industrials was the main source of outperformance. Sector positioning made a small contribution, due chiefly to the overweight allocation to technology.

The UK corporate-bond portfolio returned 6.9% for the year, outperforming the blended credit benchmark, which returned 4.9% with the larger of the underlying credit portfolios – the Sterling Short Dated Corporate Bond Fund – outperformed its benchmark by 150 bps, while the UK Corporate Bond Fund outperformed by 108 bps. At the asset-allocation level, the short-dated fund’s overweight in Investment Grade credit along with off-benchmark position in high-yield credit accounted for most of the positive contribution, respectively adding 83 bps and 45 bps. The fund’s underweight in agency and quasigovernment debt detracted 9 bps.

The UK Gilt fund outperformed its benchmark during the year, with the decision to underweight the market generating most of the relative outperformance. Having started the year at 1.28%, the UK 10-year gilt yield finished 2019 at 0.82%.

 

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 £373bn of assets (as at 31 December 2019), 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.

Change to investment strategy

LV= regularly review 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 in 2019. 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 aim, new investments have been introduced:

  • US Treasuries (also called US Government Bonds). These help 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. Further diversification of Corporate Bonds
  • Dynamic Real Return. Our asset manager, Columbia Threadneedle Investments’ flagship fund which invests in a variety of asset types aiming to deliver consistent performance, even in times of volatility.
Beginning in August of 2019, the changes were completed during November 2019. The fund objectives and the level of investment risk of the fund remain broadly unchanged.

 

LV= Awards

By winning the Investment Strategy of the Year award for 2019, LV= was recognised at the Insurance Asset Management Awards for the design review and implementation of the funds’ Strategic Asset Allocation, which will enhance expected returns by almost 1% per year whilst keeping investment risk broadly unchanged.