Portfolio design

Managing UK fiduciary portfolios

BlackRock |10-Jul-2019

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

 


How fiduciary managers run the money

As the team which runs the money on clients’ behalf, we will give regular insights into what we do and how our investment decisions help clients solve their pension problem.

  • BlackRock has dedicated client service, strategist and portfolio managers focused exclusively on delivering fiduciary solutions to the UK market. These professionals leverage BlackRock’s centres of expertise to deliver leading solutions to clients including the:

    • 130+ manager researchers who look to pick the best in class providers;
    • Market-leading transition management to ensure coordinated and cost-effective portfolio change;
    • The BlackRock Investment Institute for capital market insights;
    • Our risk and quantitative analysis team to chair risk oversight meetings to ensure consistency with the-client specific objectives
  • Client circumstances, funding goals and our intimate knowledge of investments across all asset classes and regions sit at the heart of each portfolio we construct. All this knowledge and information combines together for bespoke client portfolio built for today, but also with a structured path for meeting future funding objectives.

    This example client portfolio is for a client that has an 80% funding level. The target return is gilts +2.5%, with a full funding objective in c10 years (where the liabilities are discounted using a gilts basis).

    This chart is an example of a client portfolio that has an 80%funding level.

    For illustrative purposes only.

  • We build a strategy with sufficient complexity to deliver client outcomes. Our portfolios are diversified but not for complexity’s sake. We implement these positions in the most cost effective way. We are highly selective around our choice of asset classes and when to use active managers. We ensure our portfolios are diversified across all the key risk factors and are not overly diversified in terms of asset classes and number of managers. A client of ours should expect around 10 active managers. We believe going beyond this number of managers does not add material value, especially net of costs.

    The above portfolio is a good representation of our solution at a point of time, but this is actively managed to ensure you stay on track with your expected funding plan over time. We also actively change the portfolio around the edges over time to make sure any investment opportunities have been taken. While none of the tactical portfolio adjustments will make huge changes to the overall investment risk profile, they are expected to make tangible, cumulative improvements to the client’s funding experience.

H1 2019 review

It has been a promising first half to 2019, with markets reacting favourably to the expectation that interest rates will remain low and a growing, albeit slowing, global economy. This has helped propel both equity and bond prices higher which has benefited pension scheme growth portfolios.

However, pension scheme funding positions have come under pressure recently, with market jitters causing both equity markets and gilt yields to fall. We have actively evolved our client portfolios throughout 2019. To the end of May, funding levels have increased, with tactical asset allocation decisions and strong manager selection adding 1.5%. Set out below is an overview of some of the trades we have been making on our fiduciary portfolios.

A timeline chart of fiduciary management’s activity.

For illustrative purposes only.