4Plus Plan investor update Q1 2020

Gordon Kearney

by , Senior Portfolio Manager at State Street Global Advisors

30 Apr 2020 /  

number 4 in white text against a blue background

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 last three months have clearly been dominated by the coronavirus as it transformed into a global pandemic. It has left many grieving families in its trail and unfortunately will continue to do so over the coming months. Our thoughts are with all those affected.

From a financial perspective, the first quarter of the year was certainly a tough environment for most types of assets as there was almost no hiding from the devastating effect of the fallout from the virus, and the controls put in place to try and tame the spread of the disease.

The speed and severity of the fall in share prices has been one of the fastest ever experienced. Global share prices fell by over 30% from their peak in February to mid-March, before recovering somewhat into the end of the quarter. Even government bonds, often favoured for their low risk, experienced losses of around 10% before recovering slightly by the end of the quarter.

Whilst the PensionBee 4Plus Plan has not been immune to the market turmoil, the fund has been very active in mitigating the worst effects of the crisis. It began reducing its allocation to riskier assets such as shares towards the end of February, taking them from a level of over 70% to approximately 28% by the end of the quarter. The fund experienced a gross return of -9.1% over the quarter as a whole.

This level of return over a relatively short space of time can be unsettling for many investors. However, history has shown that investors with a longer-term time horizon are rewarded for bearing such volatility. In contrast, investors who sell assets at the point of maximum pain are often those who suffer most in the long run.

We hope that investors take some comfort in the framework of the PensionBee 4Plus Plan which is designed to take the swift decisions required to navigate our investors through periods such as we are in now. In essence, these actions to manage risk occur within the fund so that investors don’t have to make these decisions on an ongoing basis for themselves.

What can savers expect for the next quarter?

It is always worth remembering that share prices are aiming to factor in the future, however uncertain that might be. As share prices have already reacted quite negatively, right now they are pricing in a difficult time ahead, including the likelihood of recession.

For stock markets to sustainably recover, more clarity will be required on the path towards returning to more normal day-to-day economic activity. As and when more clarity around the future arises, particularly as medical solutions to manage the virus emerge, then it is likely that this will give the confidence for share prices to increase once again.

The timing of such clarity is of course difficult to predict, and in the meantime, we are likely to see fluctuations in stock prices as investors react to positive and negative news alike. On a positive note, the backdrop is one of very significant policy support. Lessons have been learned from dealing with previous economic crises with governments and central banks around the world having been very swift in ensuring the policy environment is particularly supportive of the global economy through this difficult time.

In terms of portfolio positioning within the 4Plus Plan, we are likely to remain conservatively positioned until such a time as we begin to see greater clarity on a path out of the current turmoil. Our disciplined process incorporates many perspectives as we assess and monitor the environment for opportunities to redeploy cash in order to capture upside as and when conditions improve.

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

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

In light of the outbreak of coronavirus, our President and CEO, Cyrus Taraporevala sent a letter to the boards of companies that we invest in on your behalf, outlining how we will be engaging with them in 2020 given the serious impact the virus has had on many company’s employees, operations and customers.

In the coming months, our discussions with the companies that the Plan invests in will focus on immediate issues such as employee health, serving and protecting customers and ensuring the overall safety of supply chains. Importantly, we stand ready to help these companies to navigate financial threats and market uncertainty. The full version of the letter 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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