Royal London Fund Performance

allsort

I’m hoping for some collective wisdom from the good people of MSE pension forum in respect of my DC pension with Royal London. 

My IFA, who manages my Royal London DC pension, advised in November 2020 that her company were recommending clients like me who were invested in the Governed Portfolio 5, to move to the Sustainable Diversified Trust for the reasons outlined below.  I agreed to this professional recommendation and the funds were switched on 13th November 2020.

Today, my IFA advised that investments in the Sustainable Diversified Trust have not performed as expected and have underperformed the benchmark.  Indeed, she advised that, had I left my investment in the Governed Portfolio 5, it would have grown more than it has in the Sustainable Diversified Trust.

The recommendation today from the IFA is that I switch back to the Governed Portfolio 5. 

I wondered what to make of these contradictory requests and I’m losing trust in the IFA and her company’s judgement.  This is what I pay her for as I’m not confident to make my own investment decisions.

I’d really appreciate any thoughts about what my next steps might be as currently I have no clue.

Here’s the letter I received in November 2020

 

Dear Client,

 

During our ongoing review process, over the course of the last 4 months we have identified an underperformance of the Royal London Governed Portfolios against the appropriate investment risk benchmark. Up until the beginning of June 2020 the Royal London Governed Portfolios were delivering a performance in excess of the benchmark and had done so consistently since the fund launched in 2010. When researching and recommending appropriate pension investment funds, our aim has always been to identify funds that can deliver consistent, above average returns, exactly as the Royal London Governed Portfolios have done until recently.

 

Having identified this underperformance, we raised our concerns with Royal London’s Governed Portfolio fund manager, to identify the reasons for it and to establish the fund manager’s future outlook and investment strategy. We have spoken with Royal London at length over the course of the last two months, including meetings with the fund manager himself. We believe that the root cause of the problem is an over exposure to the UK market – both the UK stock market and the commercial property market. The fund manager has defended both positions and feels that the longer term outlook is positive and that the overweight holding they have in the UK stock market will pay off over the next “1,2 or 3 years”. Whilst we are by no means taking a short term view, to us this seems an exceptionally long time horizon to leave funds exposed to a potentially significant underperformance and we do not necessarily agree that UK equities will outperform other global equity markets within the same time frame.

 

We have also spoken to other fund managers and they agree that going forward, globally diversified equity holdings are highly likely to result in better performance, especially in the post pandemic recovery. The UK market is dominated by old style businesses such as the oil and mining and commodities companies which have suffered most during this period, whereas the US market includes the majority of hi-tech companies such as Apple, Google, Netflix and Amazon that have all thrived during lockdowns and which have led a much faster recovery in the US stock market, compared to the UK market. We feel that the Royal London Governed Portfolio funds haven’t reacted to this changing market and that they appear to be entrenched in the view that the UK will come good “eventually”.

 

Whilst not wanting to take a ‘knee jerk’ reaction to the current situation, our recent discussions confirmed that the Governed Portfolio fund manager is not intending to implement a change in strategy and so our concerns have not been allayed.  We therefore believe that this fund is no longer suitable for your pension investment and hence feel it necessary to recommend a fund switch to you, with the aim of putting your investment in the best place possible in the current environment and in the future.

 

Our research has identified a suitable alternative investment solution that is available within your existing Royal London pension plan. We are recommending that you switch to this alternative fund solution. It is important to understand that this alternative fund still holds investments in UK Equities but at a lower level than your existing fund and no exposure to the UK Commercial Property. The investment mandate for the recommended fund allows for the Manager to increase exposure to the UK market if he feels it is the right time.

 

dunstonh

I wondered what to make of these contradictory requests and I’m losing trust in the IFA and her company’s judgement.  This is what I pay her for as I’m not confident to make my own investment decisions.

IFAs are not investment managers.     

Today, my IFA advised that investments in the Sustainable Diversified Trust have not performed as expected and have underperformed the benchmark.  Indeed, she advised that, had I left my investment in the Governed Portfolio 5, it would have grown more than it has in the Sustainable Diversified Trust.

This is daft.  You do not invest in Royal London funds with the expectation of getting the best performance.  They are a steady Eddie that will rarely be best and rarely be worst.   They are basically a simple option with 100% FSCS protection with no upper limit for people that don't want something that will go bump in the middle of the night.   

If you were returns focused, you wouldn't use RL in the first place.

To play around with funds based on very very short term performance indicates inexperience and a lack of judgement.  It seems to show a lack of understanding how investments work.

Here is the chart for 1 year between the GP5 and the SDT.   In May would have been lower, July to Oct higher, then Nov to Jan higher but then January to date lower.   It is far too short a period to measure which is best because on various dates it would have been one or the other.   And going forward, they could switch the other way around.    It looks like the adviser is trying to chase returns but when you do that, you typically end up facing losses as you move into areas that have gone up and the next thing is that they will go down again.  You miss the up but suffer the down.  It is a inexpereicend investor error. (and inexperienced adviser error).

The UK market is dominated by old style businesses such as the oil and mining and commodities companies which have suffered most during this period, whereas the US market includes the majority of hi-tech companies such as Apple, Google, Netflix and Amazon that have all thrived during lockdowns and which have led a much faster recovery in the US stock market, compared to the UK market. 

That is largely correct in terms of the make up. However, those tech stocks that boomed during lockdown came down with a crash late 2021 and currently, the UK is one of the better recent performers as its old fashioned industries happen to suit the current period of market sentimentality.    

When there is a consumer spending squeeze, you tend to find that companies that rely on consumer discretionary spending suffer on the markets.  Instead, things like the utilities tend to come into play.

The markets will do what the markets do.   Whilst you expect an IFA to buy in the data to be able to allocate the weightings to each sector and build a portfolio on that basis, the IFA shouldn't be trying to be something they are not.  i.e. a fund manager.  And if they were really trying to be a fund manager, you wouldn't use Royal London.   If you are using Royal London, then the Governed Portfolios are the thing to use.      

ian16527

The fund manager has defended both positions and feels that the longer term outlook is positive and that the overweight holding they have in the UK stock market will pay off over the next “1,2 or 3 years”

Looks like the RL fund manager was correct in his response. 

bonnyrigger

I've been in the G5 fund since May 2017, it's returned just under 5% a year on average over 7 years, obviously if our IFA said "move it" I'd consider it but would need a pretty good reason.

allsort

Thank you dunstonh, for your very helpful and comprehensive reply.

Thanks also to other respondents.

Thrugelmir

Welcome to the world of investing and contrary opinions. I'd say that events are moving at such a pace currently that I'd be more inclined personally to favour RL's stance. 

Found this part interesting given the tail off in US markets since the start of the year and complete change of narrative from the Federal Reserve.  Has been energy companies that have supported the SP500 more recently. The old style businessess that they are suggesting their clients shouldn't hold. 

"The UK market is dominated by old style businesses such as the oil and mining and commodities companies which have suffered most during this period, whereas the US market includes the majority of hi-tech companies such as Apple, Google, Netflix and Amazon that have all thrived during lockdowns and which have led a much faster recovery in the US stock market, compared to the UK market."

As @dunstonh said IFA's aren't investment managers. Tread carefully. 

SMcGill

They are basically a simple option with 100% FSCS protection with no upper limit for people that don't want something that will go bump in the middle of the night.   

OMG it’s like you’re looking at me straight in the eyes! 

Audaxer

allsort said:

The recommendation today from the IFA is that I switch back to the Governed Portfolio 5. 

I wondered what to make of these contradictory requests and I’m losing trust in the IFA and her company’s judgement.  This is what I pay her for as I’m not confident to make my own investment decisions.

I’d really appreciate any thoughts about what my next steps might be as currently I have no clue.

"Whilst not wanting to take a ‘knee jerk’ reaction to the current situation, our recent discussions confirmed that the Governed Portfolio fund manager is not intending to implement a change in strategy and so our concerns have not been allayed.  We therefore believe that this fund is no longer suitable for your pension investment and hence feel it necessary to recommend a fund switch to you, with the aim of putting your investment in the best place possible in the current environment and in the future."

 

It looks to me that despite what she said in her letter above, the IFA did take a 'knee jerk' reaction in Nov 2020, and possibly another one recommending the OP now moves back to the RL Governed Portfolio after a poor year from the Sustainable Diversified Trust. It looks almost like the sort of decisions an inexperienced DIY investor would make, so I'm not surprised you are losing trust in the IFA.

In your situation I possibly would agree to now switch back to the original fund, but I would not be at all happy about the gains I had lost because of the November 2020 switch.