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.
Investment strategy:
The investment approach is governed by a Statement of Investment Principles which sets out the investment strategy. The Board determines its investment strategy based on the recommendations of the Investment Strategy Group (ISG) and after taking advice from its investment advisers. The Board’s objective is to invest the funds to generate income and capital growth.
The Board has put in place a diversified asset allocation which comprises mandates with various investment managers to take advantage of investment 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, multi-asset funds, commercial property, infrastructure assets, corporate debt, securitised credit and cash. The asset allocation strategy is designed to ensure that the assets are diversified and of appropriate investment quality.
The allocation by asset class at 31 March 2024 is shown in the chart below.
Investment managers:
The investment management agreements in place with the investment managers that set out guidelines for the underlying investments held by the funds. The Trustees have meetings with each of the investment managers from time to time as necessary, usually on an annual basis. The Trustees, with the support of its investment advisers, carry out due diligence on each of the investment managers, ahead of appointment, on the operation and governance of each of the funds or mandates and agree appropriate controls.
The Trustees have adopted an Environmental, Social, and Governance (“ESG”) policy of oversight and high-level supervision as set out in the Statement of Investment Principles. The Trustees have responsibility to ensure that the investment managers’ policies are appropriate to the specific assets they manage. This is achieved by requiring the investment managers to address the issue specifically during the annual review meeting with the ISG.
Following the completion of an investment strategy review in October 2023, the Board approved the disinvestment of the Baillie Gifford Diversified Growth Fund and the appointment of the M&G Securitised Credit Fund. This new appointment was the result of analysis and recommendations presented to the ISG by its investment advisers and following an identification and interview process. The transfer of assets from Baillie Gifford to M&G was completed in phases both prior to and after 31 March 2024.
In the year, the Board also approved the ISG’s recommendation to maintain the allocation to private infrastructure and make a follow-on commitment to the next vintage of the Partners Group Direct Infrastructure offering. As at year end, the investment has not yet called any capital, with the first call expected to be in the second half of 2024.
The allocation by investment manager at 31 March 2024 is shown in the chart below.
Investment performance:
As shown in the chart below, over the year to 31 March 2024, the overall return on the investment portfolio was 4.7%. The chart below shows the overall return in each of the last five years.
Over the five-year period from 2019, the average return was 3.0% per annum. Over the ten-year period from 2014 the average return was 4.8% per annum.
Whilst overall portfolio performance was positive over the year, there was divergence across individual funds. The performance of the investment managers is measured against specific benchmarks and monitored by our investment advisers and by the ISG. The performance of index-linked gilts was up slightly over the year as the negative impact from slight rises in real yields was offset by the income received. Within corporate credit holdings, tightening credit spreads were positive for performance. The equity holdings had a very strong year as markets were generally up over the year. The multi- asset funds and property holdings had a more mixed performance providing diversification of returns. Property had a difficult year as higher interest rates impacted property valuations. However, this was somewhat offset by rental growth and asset management carried out by the managers. Within the multi-asset funds there was positive performance from Baillie Gifford as their corporate credit and equity holdings were up over the year, but the fund remained significantly behind its objective. Ruffer’s performance was down over the year due to its defensive and risk-off positioning. However, Ruffer offers diversification relative to the other holdings in the portfolio.
Outlook:
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, 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 continues 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.
Christine Johnson
Chair of the Investment Strategy Group
30 June 2024