With-profits Investment information

Main with-profits fund investment information

Report overview

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Market and Economic Review

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

Despite steep volatility through the first half of the year, 2020 ended much like it began; an equity bull market, touching all-time highs. The year was defined by the pandemic, with market performance being driven by government and consumer responses. Emerging markets, particularly Asia and especially China, where the impact of the virus was constrained, outperformed developed markets struggling to contain a second wave of infections. 

The stimulus provided by governments drove a faster than anticipated recovery in equity markets where most regions notched gains over 2020. However this was a far from equal 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 2020, when Pfizer and BioNTech reported they had achieved over 90% effectiveness in large-scale human trials. The news sparked a surge in oil prices and equity markets saw investors switch out of year-to-date winners into beaten-down stocks that had 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. Energy and financials led the rally, while consumer staples (such as food and household goods) and healthcare were weakest. 

Also during Q4, core fixed income markets had mixed fortunes. The 10-year US Treasury yield increased (meaning prices fell), driven upwards by rising expectations for US fiscal stimulus and inflation. The yield for German and UK equivalents both edged downwards linked to lockdown worries and increased central-bank purchases. The yield from US and European corporate bonds also fell.

Main with-profits fund performance review

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). 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 benefited from opportunities after the March 2020 lows to purchase quality stocks at attractive valuations that were previously considered too expensive.

US equities returned 19.0% for the year against the benchmark return of 15.5% 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 5.1% whereas the benchmark returned 2.8%) during the year. Stock selection accounted for all the outperformance led by Technology and Industrials. 

UK equity assets (-8.9%) 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 10.8% for the year, outperforming its benchmark, which returned 9.6%. Strong performance came from the 70% 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 late in 2019 proved positive as the fund returned 9.7% for the year, comfortably ahead of its benchmark return of 7.2%. 

The benefit of the funds exposure to both UK Gilts and US Treasuries was most noticeable during quarter 1, where these assets offset equity weakness within the fund. Their resilient characteristics resulted in stable performance throughout the year. Due to the strong returns across most asset classes, the Multi-Asset fund (DRR) performed strongly returning 8.2%, comfortably ahead of its target of 4.6%. 

Despite rebounding during the second half of 2020, Property assets experienced a difficult year, ending down -2.9% over the 12 months. The assets are UK focussed which suffered heavily during the lockdown. The funds return was also negatively impacted by the direct property assets.

Standardised Performance for the main with-profits fund

These figures show the investment return (before tax and charges) on the with-profits fund each calendar year for the last five years

Year Investment return 
Year to 31 December 2016 14.6% 
Year to 31 December 2017 7.9% 
Year to 31 December 2018 -4.2% 
Year to 31 December 2019 14.3%
Year to 31 December 2020 8.2% 

Year Investment return 
Year to 31 December 2016 14.6% 
Year to 31 December 2017 7.9% 
Year to 31 December 2018 -4.2% 
Year to 31 December 2019 14.3%
Year to 31 December 2020 8.2% 

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 Liverpool Victoria Financial Services Limited.
  • 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.