Tailored Plan investor update Q3 2020

Dom Byrne

by , Lead Investment Strategist at BlackRock

18 Nov 2020 /  

18
Nov 2020

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Hi, I’m Dom Byrne from BlackRock, and I’m here to give you an update about the Tailored Plan, which you are invested in.

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.

How did the plan perform compared to the market, over the last three months? Did we have a good quarter or a bad quarter?

New coronavirus outbreaks have dulled the economic recovery in certain parts of the world, including Australia, US, UK and parts of Europe. Many governments have started to respond to local outbreaks with localised and more targeted restrictions which generally have less severe effects on overall economic activity – meaning the broader recovery remains intact but further volatility in the near-term is a distinct possibility. Overall the second quarter rebound in investor sentiment continued into the third quarter and most global stock markets delivered positive returns, despite a significant pull-back toward the quarter-end where major markets saw negative returns for the first time since March.

Looking more deeply into the drivers of return, within stock markets, the Tailored Plan’s funds are diversified across a variety of stock markets. Over the third quarter of the year, World ex-UK and Emerging Markets stocks contributed positively on performance with overall positive returns year-to-date to September end. Over the same period, due to the elevated uncertainty, as a result of the recent developments in Brexit negotiations and the spike in new COVID-19 infections in the UK, domestic stocks had a negative effect on performance, remaining significantly down year-to-date to September end.

Against the uncertain backdrop in the UK, and given the lack of evidence that the Bank of England would fully support negative interest rates, gilt yields (UK government debt yields) ended the quarter higher compared to the beginning of the quarter, yet delivering negative returns. However, so far in 2020, gilts have been one of the best performing asset classes within the Tailored Plan providing portfolio diversification and resilience against the equity sell off in the first quarter of the year. Government bonds (debt) ex-UK ended the quarter slightly higher as opposed to the start of the quarter, adding to their already strong year-to-date performance, while corporate bonds continued to provide positive returns in Q3 after a strong Q2 performance, outperforming government bonds for a second quarter in a row.

Tailored Plan vintages experienced strong performance in Q3, with longer-dated vintages, designed for savers that have a long time (e.g. over 20 years) to their retirement date, outperforming the shorter-dated vintages (where our investments are more suitable for investors approaching and navigating retirement) with performance ranging from +1.8% (Tailored Vintage 2019-2021) to +4.4% (Tailored vintage 2070-72).1 This is mainly due to the larger allocation to global stocks, which have outperformed bonds over the period.

As a result of these market moves and given their higher allocation to bonds, the vintages close to retirement erased all their Q1 losses and have added more than +1.5% year-to-date to September end, while the 2031-33 vintage balanced out its year-to-date losses entirely. The mid- and longer-dated vintages within the Tailored Plan remained in negative territory, with the longer-dated vintages being down approximately -3.6%. However, over a five-year period, despite several periods of volatility, we have seen greater growth from vintages with greater exposure to risk assets, with the Tailored Plan 2055-57 vintage for instance, returning gross +9.2% p.a. over the past five years to 30 September 2020.1

1 source: BlackRock, as of 30 September 2020. Performance gross of fees in GBP

Annual performance to last year end (30 September 2020) YTD 2019 (%) 2018 (%) 2017 (%) 2016 (%) 2015 (%)*
BlackRock DC LifePath Flexi Retirement 3.1% 12.9% -3.1% 7.4% 11.7% -3.7%
BlackRock DC LifePath Flexi 2031-2033 0.1% 17.6% -5.0% 11.7% 13.6% -4.6%
BlackRock DC LifePath Flexi 2055-2057 -3.7% 23.4% -6.9% 14.8% 15.5% -5.2%
Returns to 30 September 2020 Q3 2020 YTD 1 Year 3 Years p.a. 5 Years p.a.
BlackRock DC LifePath Flexi Retirement 1.8% 3.1% 3.3% 5.1% 6.5%
BlackRock DC LifePath Flexi 2031-2033 2.9% 0.1% 2.7% 5.1% 8.0%
BlackRock DC LifePath Flexi 2055-2057 4.4% -3.7% 2.1% 5.1% 9.2%

The figures shown relate to past performance. 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.

*2015 performance reflects inception date to year-end (7/4/2015 – 31/12/2015)

Data is subject to change. Source: BlackRock as at 30 September 2020. For illustrative purposes only. Performance shown is gross of the annual management charge but is net of additional expenses (if any) incurred within the fund, calculated on a Nav to Nav basis in sterling, and in a total returns. Results do not reflect the deduction of management/advisory fees and other expenses; management/advisory fees and other expenses will reduce a client’s return.

What can savers expect for the next quarter?

The initial phase of the economic restart has been quicker than expected, but the part that lies ahead will be the hardest. Governments are incentivised to respond to rising cases with new containment measures as health concerns generally still trump economic ones. We are seeing this play out in Europe, with the introduction of curfews in France and Germany, and the month-long lockdown in England. Measures are targeted and local, but in sum, they have the potential to weigh on mobility and economic activity in the near-term. The timeline for a vaccine has been a positive surprise following accelerated efforts worldwide. Yet immunisation is not a panacea for the economy and a recovery to pre-COVID levels will take time.

We do not expect a similarly large hit to economic activity as seen in the spring. But the restart now looks to be facing significant challenges in the near-term. The risk is a broadening of containment measures that leads to a stalling for a few months – or even temporary reversal – of momentum in the economic restart. Ongoing policy support is crucial to help bridge businesses through any shock and avoid any long-lasting economic effects. Well-designed COVID-19 testing regimes are a key differentiator across countries – and asset returns.

The pandemic has exposed vulnerabilities of global supply chains and added a catalyst to geopolitical fragmentation. It has led to a policy revolution that blurs the boundaries between fiscal and monetary action – which could address some of the rising inequalities. And it has put a premium on sustainability, corporate responsibility and resilience of companies, sectors and countries. Market sentiment has been driven by the pandemic’s near-term evolution and the policy response, but these structural limits are transforming the investment landscape and will be significant to investment outcomes.

At BlackRock we are focusing on building real resilience for the whole portfolio. This goes beyond building a better blend of returns - it’s about ensuring the portfolio is well positioned at a more granular level to underlying themes, including sustainability. The pandemic has accelerated a tectonic shift toward sustainability and a call for a focus on resilience: diversifying across companies, sectors and countries that are positioned well for these trends. Therefore, over the long-term we believe that owning a diversified portfolio of stocks and other assets that incorporates sustainable insights will be beneficial for savers.

How has BlackRock driven positive social change in the past quarter?

BlackRock has recently been analysing our investment stewardship activities over the past year. Investment stewardship for BlackRock goes beyond simply voting at companies’ shareholder meetings, we also emphasise engagement - the direct dialogue with companies on governance issues that have a material impact on sustainable long-term financial performance. We advocate for robust corporate governance and the sound and sustainable business practices core to long-term value creation for our clients and promotion of positive social impact.

To highlight some of our key achievements in 2020, firstly BlackRock Investment Stewardship team voted against more directors than in previous years, reflecting heightened investor and societal expectations. Over 5,000 votes against directors at 2,809 companies2 were driven by concerns regarding director independence, insufficient progress on board diversity, and overcommitted directors. BIS also held directors to account for insufficient progress on climate disclosures and compensation policies inconsistent with sustainable long-term financial performance (5,130 vs nearly 4,800 (this year vs prior year)2.

Secondly, engaging corporate leaders has been our top priority. The events of the past six months, have reinforced the need for strong leadership so in 2020 BlackRock Investment Stewardship team increased its engagement by almost half (+48%) – total engagements: 3,043 vs. 2,050 (in 2020 vs. 2019 respectively)2 – both in reaction to the pandemic and to enable us to hold management accountable, particularly given our commitment to intensify our focus and engagement with companies on sustainability-related risks.

Thirdly, we believe investor expectations continue to rise. In light of the external environment and developments, we are currently reviewing our voting and engagement guidelines to provide more detail on our expectations and how we intend to reflect them in our voting actions in the next proxy season. BlackRock Investment Stewardship team has already set out expectations for 244 carbon-intensive companies making insufficient progress integrating climate risk into their business models or disclosures.2 Those that do not make significant progress risk voting action being taken against management in 2021.

2 source: BlackRock 2020 Investment Stewardship Report, as at September 2020

Views expressed are of BlackRock. The Tailored Plan represents the BlackRock LifePath Funds.

Risks warnings

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.

Tailored Plan fund specific 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.

Important information

This material is for distribution to Professional Clients only and should not be relied upon by any other persons.

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.

Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2020 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK and SO WHAT DO I DO WITH MY MONEY are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

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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.

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