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LV= ISA INVESTMENT REPORT

Fund options for LV= ISA, 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 LV= ISA, for the period 1 January 2020 to 31 December 2020.

Market and Economic Review

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

In a year defined by the pandemic, market performance was similarly driven by policy and consumer response. Emerging markets, particularly Asia and especially China, where the impact of the virus was muted, outperformed developed markets struggling to contain a second wave of infections. 

Strong fiscal and monetary stimulus drove a faster than anticipated recovery in equity markets where most regions notched gains over 2020. However this was far from an equal ‘V’ shaped recovery. Consumer demand, changed by ‘stay-at-home’ policies, accelerated demand for certain technologies and an almost exclusive use of online retail. Demand for a vaccine drove the outperformance in the healthcare sector. Other sectors and regions have not yet recovered, and for some, such a recovery is uncertain to materialise. 

Vaccines were first approved for use during December. The big breakthrough for markets came on 9 November, when Pfizer and BioNTech reported they had achieved over 90% efficacy in large-scale human trials. The news sparked a surge in oil prices and a rotation in equity markets. Value outperformed growth as investors switched out of year-to-date winners into beaten-down stocks that have most to gain from a resumption of normal economic activity. 

Aside from the virus and the vaccine, markets were focused on the US elections and Brexit. Investors welcomed a clear Biden victory and the avoidance of a no-deal Brexit. 

During Q4, the equity rally lost pace slightly from the second half of November onwards, with gains capped by concerns about the new virus strains and slower-than-hoped vaccine distribution. Nevertheless, the MSCI AC World continued to set fresh highs on the way to a quarterly return of 12.9% in local terms. The strength of the pound brought this down to 8.6% in sterling terms. Energy and financials led the rally, being the prime beneficiaries of the aforementioned rotation, while consumer staples and healthcare were weakest. 

Over the quarter core bond markets had mixed fortunes. The 10-year Treasury yield rose 23 basis points (bps) during Q4, driven upwards by rising expectations for US fiscal stimulus and inflation. The German and UK equivalents edged down by 5 bps and 3 bps respectively, anchored by lockdown worries and increased central-bank purchases. Global investment-grade credit spreads narrowed by 35 bps, led by the US market, while European high-yield (HY) spreads narrowed by 123 bps. 

 

Market and Economic Outlook

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

With the Covid-19 case count remaining high across the US and Europe, the immediate outlook is turning darker. Yet for equities, the most important news has been that a future without an effective vaccine now looks unlikely, and with a greater number of meaningfully more efficacious vaccines than we and most others expected, financial markets have been cheered considerably.

Furthermore, the relatively favourable US election outcome has removed tail risks and brought with it some unanticipated bipartisan cooperation regarding the recent fiscal package. At the margin, the Democrats’ newly won and wafer-thin Senate majority should allow further stimulus to pass through Congress more easily, though more radical policies could still be stymied by more conservative members of the party.

Pairing these developments with some fairly resilient economic data, and shallower 2020 contractions than we feared, we are feeling more positive on certain cyclical parts of the world. While valuations are high, low discount rates are a powerful force, and should create fertile conditions for more persistent risk rallies.

As the pace of the recovery will affect regions, industries and companies differently, we believe that active management remains critical to adding value through asset allocation and security selection. Our broad preference remains for high-quality risk in both equities and credit: companies that are positioned to deliver robust earnings despite a tepid macroeconomic environment.

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 LV= ISA Conditions and Supplementary Information Document. 

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.

ISA Cautious

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.

LV= ISA

Unit price date 31 December 
2020*
31 December 2019*  17 June 2019**
Unit price* 108.7p  102.2p 100.0p 
Growth (%)  for the 12 months to date shown 6.4% n/a  n/a
Total percentage growth of unit price from 17 June 2019 (launch date) to 31 December 2020 
 8.7%

Unit price date 31 December 
2020*
31 December 2019*  17 June 2019**
Unit price* 108.7p  102.2p 100.0p 
Growth (%)  for the 12 months to date shown 6.4% n/a  n/a
Total percentage growth of unit price from 17 June 2019 (launch date) to 31 December 2020 
 8.7%

ISA Balanced

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.

LV= ISA

Unit price date 31 December
2020*
31 December 2019* 17 June 2019**
Unit price* 108.8p  101.9p 100.0p
Growth (%)  for the 12 months to date shown 6.8% n/a  n/a
Total percentage growth of unit price from 17 June 2019 (launch date) to 31 December 2020  8.8%
Unit price date 31 December
2020*
31 December 2019* 17 June 2019**
Unit price* 108.8p  101.9p 100.0p
Growth (%)  for the 12 months to date shown 6.8% n/a  n/a
Total percentage growth of unit price from 17 June 2019 (launch date) to 31 December 2020  8.8%

ISA 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.

LV= ISA

Unit price date 31 December
2020*
31 December
2019*
17 June 2019**
Unit price* 108.4p 101.6p 100.0p
Growth (%)  for the 12 months to date shown 6.7% n/a n/a
Total percentage growth of unit price from 17 June 2019 (launch date) to 31 December 2020 8.4%
Unit price date 31 December
2020*
31 December
2019*
17 June 2019**
Unit price* 108.4p 101.6p 100.0p
Growth (%)  for the 12 months to date shown 6.7% n/a n/a
Total percentage growth of unit price from 17 June 2019 (launch date) to 31 December 2020 8.4%

Performance review

Despite steep volatility through the first half of the year, 2020 ended much like it began; an equity bull market, touching all-time highs. Nominal and relative returns demonstrate strong growth over the year.

Over Q4, high vaccine efficacy rates and increased policy stability through a decisive US election and the avoidance of a no-deal Brexit, drove strong performance across global equity markets. UK equity, a notable laggard, outperformed other developed markets over the quarter (however, ended the year down 9.8%) as the vaccine buoyed value stocks. Generally credit outperformed sovereigns whilst returns from property continued to disappoint. Though gilt and swap rates rose over Q4, they ended the year at much lower levels than they began.

Over the year, the portfolio returned 10.2%, outperforming its benchmark by 286bps. Alpha (a measure of the return relative to the benchmark) was driven by strong stock selection which focused on the technology and healthcare sectors. Allocation detracted, slightly driven by an overweight exposure to UK equities in the first quarter; a position which has subsequently been reversed during the remainder of the year.

Whilst strong performance was generated across all regions, two in particular stood out: the Japan equity asset class outperformed the benchmark by 17.2% whilst the Emerging Markets equity assets outperformed by 15.3%, (both in Sterling terms). Both funds ranked in the top decile of their respective peers during the last 12 months.

Within the Global Emerging Markets portfolio, almost half the outperformance was due to stock selection with China, with technology and healthcare the dominant success stories. Geographically, China, Korea and Taiwan benefited from strong outperformance in the semi-conductor sector. 

In Japan, technology and industrials stocks drove the 12 month outperformance. The fund also benefited from opportunities after the March 2020 lows to purchase quality stocks at attractive valuations that were previously considered too expensive.

US equities returned 20.0% for the year against the benchmark return of 15.5%. Technology dominated the success stories during 2020. The fund was successful in negotiating the value rotation during quarter 4. 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 we are now entering.

The European equity portfolio delivered strong outperformance against its benchmark (the assets returned +4.9% whereas the benchmark returned +2.8%) during the year. Stock selection accounted for all the outperformance led by Technology and Industrials. 

UK equity assets (-7.9%) outperformed the FTSE All Share (-9.8%) over the year due principally to the improvement in cyclical stocks and stock picking within Industrials. Overall, the UK equity market lagged 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. All three of the underlying UK equity holdings outperformed the FTSE All Share during the year. The UK Equity Income Fund and the UK Select Fund drove the performance, ahead of the benchmark by 382 and 277 basis points respectively. The UK Institutional Fund was only marginally ahead of benchmark, recouping losses made during the first quarter. The UK Equity Income Fund benefitted during the year from its more defensive positioning, consistently outperforming the benchmark.  The UK Select Fund was well positioned to make gains during the first quarter, and benefitted from the reflation/recovery during the 4th quarter. 

The UK corporate-bond portfolio returned 5.1% for the year, outperforming its blended credit benchmark, which returned 4.1%. The majority of the funds exposure to Sterling investment grade credit is through short-dated holdings (those less than 5 years to maturity). Whilst the portfolios low sensitivity to interest rates and duration led to modest absolute returns, strong relative performance was generated through the portfolios overweight position in investment grade credit, relative to Agency/Quasi-Government holdings.

The diversification into Developed Markets credit late in 2019 proved positive as the fund returned 9.7% for the year, comfortably ahead of its benchmark return of 7.2%. The funds overweight exposure to corporates over Agency and Quasi-Government issuers generated much of the outperformance. Security selection was generally positive for relative performance against benchmark.

The decision to remain underweight UK Gilts throughout the year had a positive impact on relative performance. The portfolio outperformed its benchmark (+8.8% compared to +8.3%). Having started the year at 0.82%, the UK 10-year gilt yield finished 2020 at 0.20%. The portfolio maintained a long duration position throughout the year which was responsible for the majority of the 50 basis points outperformance.

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 decision to remain underweight UK Gilts throughout the year had a positive impact on absolute and relative fund performance; the assets returned +8.8% whilst its benchmark returned +8.3%. Having started the year at 0.82%, the UK 10-year gilt yield finished 2020 at 0.20%. The portfolio maintained a long duration position throughout the year which aided performance. US Treasuries produced positive return of +7.5% for the year, slightly below its benchmark of +7.8%.

Due to the strong returns across most asset classes, the Multi-Asset fund (DRR) performed strongly (+8.2%), comfortably ahead of its target (+4.6%). The fund is also in the top quartile against its peers during the year.

Despite rebounding during the second half of 2020, Property assets experienced a difficult year, ending down -2.7% over the 12 months. The funds dividend rate remains one of the highest amongst its peers. It was one of the first funds to re-open to investors.

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 £400bn of assets (as at 31 December 2020), 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.