With-profits Investment information

With-profits fund 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.
  • The information below gives an overview of the performance of the assets held in the Liverpool Victoria Financial Services fund that backs most of its with-profits policies, for the period 1 January 2018 to 31 December 2018.
  • Different investment information pages are available for the Flexible Guarantee Bond, Flexible Guarantee Bond (Series 2), Flexible Guarantee Bond (Series 3), Flexible Guarantee Funds, Flexible Guarantee Funds (Series 2), All-in-1 Investment Bond, Guaranteed Capital Bond and the Flexi Guarantee Plan.

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.

With-profits Performance Review

During 2018 the fund produced an investment return which was below benchmark. The main driver of this was poor stock selection. Generally, asset allocation had little impact on performance over the year.

Despite performing well against global equities, the multi-asset portfolio was responsible for a large proportion of the underperformance. This is because the benchmark for this portfolio is 4% above inflation, (6.2% for 2018). Given the turbulent economic conditions, a strong positive return of 6.2% was unachievable and therefore masked the relatively good performance.

Property returns also contributed to the underperformance. As a result of more money being taken out of the underlying property fund than invested into it, the way shares were valued was 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 such as LV=. 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 impacted all the overseas equity asset classes.

UK equities outperformed the FTSE All Share. Relative gains were driven by favourable stock selection, with investments in communication services, technology and consumer staples (such as food and household goods) adding the most value.

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

Stock selection within emerging markets had mixed results. Negative investment performance in the materials, technology, communication services and consumer staples sectors partially offset by 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). The reduced investment in real estate and zero investment in utilities detracted from the performance over the year.

Standardised Performance for the 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 2014 11.4% 
Year to 31 December 2015  3.9%
Year to 31 December 2016 14.6% 
Year to 31 December 2017 7.9% 
Year to 31 December 2018 -4.2% 

Year Investment return 
Year to 31 December 2014 11.4% 
Year to 31 December 2015  3.9%
Year to 31 December 2016 14.6% 
Year to 31 December 2017 7.9% 
Year to 31 December 2018 -4.2% 

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.