Principal investment objective:
The principal investment objective of the Trust is to invest the funds received from plan sales in such a way as to maximise the likelihood that the Trust’s assets will be sufficient to meet the costs of all pre-paid funeral plans as they mature.
The Board has put in place a diversified asset allocation which comprises mandates with nine investment managers to take advantage of investment and expertise in different areas. Our current target is to hold 40% of assets in index-linked gilts, with the other 60% divided between global equities, diversified growth funds, commercial property, infrastructure assets, corporate debt and cash. The asset allocation strategy is designed to ensure that the assets are diversified and of appropriate investment quality.
During the year the Board approved the Investment Strategy Group’s (“ISG”) recommendation to make an allocation to a new asset class of secure income as part of the implementation of the agreed investment strategy. Following an identification and interview process, Barings was appointed as an additional manager.
The allocation by asset class at 31 March 2022 is shown in the chart below.
Representatives from each of the nine managers of the underlying funds, including the senior personnel directly responsible for managing the mandate, are invited on a rolling basis to attend meetings with the ISG. This helps both to monitor performance and to understand how each investment manager is discharging its responsibilities.
The allocation by investment manager at 31 March 2022 is shown in the chart below.
The performance of the investment managers is measured against specific benchmarks and monitored by our investment advisers and by the ISG. Each month our investment advisers provide the ISG with a statement of the overall performance of the investment portfolio and of the individual underlying managers. A full report is provided each quarter which is used by the Board in its review of investment performance.
The year to 31 March 2022 began with markets focused on the recovery from the COVID-19 pandemic following the successful vaccine rollout. However, as 2021 came to an end the focus switched to rising inflation and the actions that central banks would need to take to bring it under control, with central banks beginning to significantly tighten monetary policy for the first time since the start of the pandemic. The concerns around inflation were exacerbated in February 2022 as the Russian invasion of Ukraine led to further disruption, particularly in energy markets.
Over the year to 31 March 2022, the overall return on the portfolio was 6.6%. The majority of holdings had a positive 12 months, despite some volatility in the period. There was particularly strong double-digit performance over 12 months for the passive equity holdings and the property funds, in line with, or ahead of, their respective benchmarks or objectives. Approximately £16 million was received in income from the invested assets over the year to assist with cash flow.
The likelihood and impact of risks to the investment portfolio are considered by the ISG at its quarterly meetings and any agreed actions and additional control measures are taken to the Board for approval. Alongside this we regularly instruct our investment advisers to perform and report on the results of stress testing scenarios.
It has been the objective of the Board to spread the risks of investment and to strengthen the investment portfolio so that it can meet such challenges. Over the year, given the emerging economic risks, we have continued to consider the ongoing appropriateness of the investment strategy both at a portfolio and individual mandate level, and have responded with changes to the strategy and portfolio. The ISG continue to work to ensure the portfolio is positioned to meet its objectives and to be resilient to risks and volatility in so far as is possible now and into the future.
Chair of the Investment Strategy Group
30 June 2022