4Plus Plan investor update Q3 2020

Gordon Kearney

by , Senior Portfolio Manager at State Street Global Advisors

18 Nov 2020 /  

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Hi, I’m Gordon Kearney from State Street Global Advisors, and I’m here to give you an update about the 4Plus 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?

The global economy continued its strong rebound in the third quarter of the year as COVID-19 related lockdowns eased, government and central bank support remained firm and pent up demand by consumers was released.

Having said that, this momentum began to wane towards the end of the quarter, particularly as services such as tourism and hospitality faced renewed restrictions given rising COVID-19 cases. Countries such as Spain, Italy and the UK that depend more on services, for example tourism and hospitality, began to struggle more than those with more of a manufacturing bias, such as Germany and China.

In terms of how stock markets reacted to these events, overall it was a muted but positive three month period. Stock markets drifted higher, delivering low single digit returns. Government bonds fell slightly over the quarter as longer term interest rates edged upwards from very low levels.

The PensionBee 4Plus Plan added just over 2% in performance terms during the quarter. Whilst the plan had a conservative bias at the end of June, it quickly re-risked as elevated nervousness in markets gave way to more normal market conditions at the beginning of July. These more normal conditions (neither nervous nor aggressive), remained in place right through to the end of September and gave a foundation for markets to take account of new information in a relatively rational manner.

As the performance of different types of assets becomes more spread out, it has become more important to be very targeted in the type of investments held. As such, the plan has focussed more on holding developed stock markets as well as on corporate bonds, whilst remaining more negative on property and commodities.

What can savers expect for the next quarter?

The final stretch of an extraordinary year will be no less eventful than what we have witnessed to date. Two items that will affect our lives over the next few years, namely US elections and clarity on a potential vaccine will dominate markets as we close out the year.

The market has to balance two somewhat opposing forces. The longer the COVID-19 crisis goes on and waves of infection result in rolling lockdowns, the more individuals, companies and governments suffer and questions begin to arise about the sustainability of spending, and resilience of companies and consumers.

At the same time, the longer the crisis goes on, the closer we get to a potential vaccine with results from a number of trials expected before the end of the year. Add a US election to the mix -one that has the potential to have a messy handover - and the ingredients are there for markets to become more nervous into year end.

This uncertainty is not enough to take a defensive position. In fact, a decisive election result combined with positive news on the vaccine front could provide a degree of support to underpin stock markets. The uncertainty does however highlight the benefit of investing in a portfolio that captures upside should the positive outweigh the negative, but can also take swift action to help protect your savings should sentiment deteriorate.

How has State Street Global Advisors driven positive social change in the past quarter?

Our aim is to promote positive changes to the environmental, social and corporate governance practices in the companies that the Plan invests in by engaging with them and voting on resolutions at company annual general meetings.

Climate change has been, and will continue to be, a key area of focus for our stewardship endeavours. As a result of the impact from COVID-19 the attention of many companies has shifted from longer-term sustainability matters to more immediate ESG and economic factors. It is important that companies focus on the short-term issues that have arisen but this should not be to the detriment of systematic risks, such as climate change, hence we have continued to engage with companies on the topic. So far this year we have had 72 specific climate-related engagements and they have focused on having companies:

  • Address the risk of climate change on their business
  • Commit to reducing carbon emissions
  • Educate boards ensuring directors are aware of climate risks
  • Provide climate reporting which conforms with relevant standards

Coupled to our engagement efforts to drive positive change, is the use of our vote at shareholder meetings. In recent years most climate-related shareholder resolutions were targeted at energy companies. This year however, we have seen a growing number aimed at financial institutions. One such example is a shareholder resolution raised with Barclays by the responsible investment charity, ShareAction. The resolution sought to direct the company to stop financing energy and utility companies that are not aligned with the Paris Agreement.

Following engagements with shareholders and ShareAction, Barclays announced a plan to reach net zero carbon emissions by 2050 and a commitment to align all of its financing activities with the goals and timelines of the Paris Agreement. Barclays also submitted its own management resolution on climate for investors to consider at the annual meeting vote. The spirit of both resolutions was broadly similar but we opted to support Barclays’ resolution and abstain from the resolution submitted by ShareAction for the following reasons:

  • We believe Barclays’ proposal was the more ambitious of the two. Further, Barclays’ ambition to achieve net zero emissions by 2050 covers all of its portfolio, not just lending (as proposed by ShareAction’s resolution).
  • The resolution submitted by Barclays sought to transition its provision of financial services across all sectors to align with the Paris Agreement, whereas ShareAction’s resolution was too narrowly focused on the “phaseout” of specific financial services in the energy and power sectors.
  • The passing of both resolutions could have created legal uncertainties, as they are both binding.

We will continue to engage and vote on climate change matters and our recently published Annual Climate Stewardship Review which providers further insights into our activities can be found here.

Your updated fact sheet will soon be available to download in the BeeHive. If you’d like to ask a question in the next update or share your thoughts, you can get in touch with PensionBee via email or Twitter.

As with all investments, past performance is not indicative of future performance and you may get back less than you start with.

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