Hi, I’m Viraj Bhayani from BlackRock, and I’m here to give you an update about the Match Plan, which you are invested in.
How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?
TheMatch Plan is a diversified portfolio that follows the average of its peers in the Pension Sector at an accessible cost. The fund’s investments are guided by the strategies of similar funds, implementing the average across the pensions sector. As a result, the Match Plan aims to perform at the average when compared to its peers. The fund invests in a mix of bonds, shares and cash which allows it to minimise losses during market downturns and pick up the positive performance during market recoveries.
Following a challenging first quarter of the year, where the COVID-19 pandemic drove a sharp fall across markets, the second quarter reflected the improving global situation. The stimuli to the economy provided by governments and central banks have shown positive results in supporting the economies, and businesses have started reopening while the pandemic statistics look calmer in many areas of the world. While the uncertainty remains around the future of the COVID-19 virus and the recovery of the economies after the shock, investors started to regain confidence which was reflected in the rise in stocks and bonds prices.
The return for the Match Plan over the three months ending June 30th 2020 was 12.28% (GBP), which on an absolute scale, reflects the general market rally.
What can savers expect for the next quarter?
The initial COVID-19 contraction is larger than the great financial crisis in 2008, but we believe its cumulative impact on the economy will likely be less as long as the policy response remains strong enough to cushion the blow. Normal economic crisis and recovery cycle does not apply, so we are tracking three signposts: how successful economies are at restarting activity while controlling the virus spread; whether stimulus is still sufficient and reaching households and businesses; and whether any signs of financial vulnerabilities or permanent scarring of productive capacity are emerging. Markets are laser-focused on changes in any of these three “known unknowns,” and a possible second wave of infections and policy fatigue are major risks in the second half of 2020.
The shock will have long-term consequences that are starting to play out. Policymakers are funnelling money directly to the (non-financial) private sector, with debt monetisation, which is a way for the central banks to finance the government spending, being a possibility down the road. The pandemic is reinforcing structural trends such as ecommerce and sustainability; amplifying deglobalisation and geopolitical fragmentation; and may deliver a generational shock to the emerging world.
We expect volatility to remain elevated over the near-term and, whilst we appreciate this is challenging given the uncertainty in markets, we believe savers should take a long-term perspective. This is particularly relevant for those savers with a long time to retirement. This is because, simply put, we still expect shares to outperform other assets such as cash and fixed income over the long-term and therefore believe stocks and other risky assets have the potential to help our savings grow over time.
How has BlackRock driven positive social change in the past quarter?
Sustainability considerations are at the core of our approach to how BlackRock invests, manages risk and executes its stewardship responsibilities. This commitment is based on our conviction that climate risk is investment risk and that sustainability-integrated portfolios can produce better risk-adjusted returns to investors in the long-term.
While BlackRock Investment Stewardship team (BIS) has been engaging with the companies on sustainability issues for years, this year we are focusing more on engaging with firms in carbon-intensive sectors. These include for example ExxonMobil, where BlackRock voted against directors due to significant concerns about climate risk management and supported a shareholder proposal on governance; or TransDigm, a U.S. aviation manufacturer, where BlackRock voted against a director for lack of progress on climate risk reporting and supported shareholder proposal to adopt emissions goals. These companies face material financial risks during the transition to a low-carbon economy. Together, they represent a significant proportion of market capitalisation and CO2 emissions in their respective regions. BIS is determined to maximise the impact of its climate-related engagements.
In 2020, we have identified 244 companies that are making insufficient progress integrating climate risk into their business models or disclosures. Of these companies, we took voting action against 53, or 22%. We have put the remaining 191 companies “on watch.” Those that do not make significant progress risk voting action against management in 2021.
Through this report, we hope to provide a deeper look at our engagement process and methods; how we are working to promote transparency in investment stewardship, both in our own activities and through the adoption of disclosure standards; our involvement with Climate Action 100+; and our view on the importance of social factors to the long-term health of companies and society as a whole.
The opinions expressed are as of June 30th 2020 from BlackRock and are subject to change at any time due to changes in market or economic conditions.
Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
BlackRock DC LifePath UK Risks
Credit Risk: The issuer of a financial asset held within the Fund may not pay income or repay capital to the Fund when due.
Equity Risk: The values of equities fluctuate daily and a Fund investing in equities could incur significant losses. The price of equities can be influenced by many factors at the individual company level, as well as by broader economic and political developments, including daily stock market movements, political factors, economic news changes in investment sentiment, trends in economic growth, inflation and interest rates, issuer-specific factors, corporate earnings reports, demographic trends and catastrophic events.
Derivative Risk: The Fund uses derivatives as part of its investment strategy. Compared to a fund which only invests in traditional instruments such as stocks and bonds, derivatives are potentially subject to a higher level of risk.
Liquidity Risk: The Fund’s investments may have low liquidity which often causes the value of these investments to be less predictable. In extreme cases, the Fund may not be able to realise the investment at the latest market price or at a price considered fair.
Counterparty Risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Issued by BlackRock Life Limited (“BLL”), which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. The Fund described in this document is available only to trustees and members of pension schemes registered under Part IV of the Finance Act 2004 via an insurance policy which would be issued either by BLL, or by another insurer of such business. BLL’s registered office is 12 Throgmorton Avenue, London, EC2N 2DL, England, Tel +44 (0)20 7743 3000. Registered in England and Wales number 02223202. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.
Rates of exchange may cause the value of investments to go up or down. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Any objective or target will be treated as a target only and should not be considered as an assurance or guarantee of performance of the Fund or any part of it. The Fund objectives and policies include a guide to the main investments to which the Fund is likely to be exposed. The Fund is not necessarily restricted to holding these investments only. Subject to the Fund’s objectives, the Fund may hold any investments and utilise any investment techniques, including the use of derivatives, permitted under the Financial Conduct Authority’s New Conduct of Business Sourcebook which contain the rules by which investment of the Fund is governed. The BlackRock Life Limited’s notional fund units have a single unit price. The unit prices are normally calculated on each business day. For performance reporting, notional units are valued at special closing prices on the last working day of each quarter to enable comparison with the relevant benchmark index.
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As with all investments, past performance is not indicative of future performance and you may get back less than you start with.