Agenda item

This paper reports on the performance of the individual portfolios and seeks to update the Panel on routine aspects of the Fund’s investments.

The Investments Manager introduced this report and highlighted the following areas to the Panel.

·  The Fund’s assets were £5,268m on 30 September 2023 and delivered a net investment return of -2.9% over the quarter. The decline in the value of Fund assets over the quarter was driven mainly by the LDI portfolio and equity assets. Overseas property and secured income portfolios also detracted.

·  Quarter 3 saw a decided change in tone and outlook. Although interest rates are no longer rising rapidly, the expectation is that they will now remain at higher levels for longer. This weighed on both global equity and bond markets. Brunel’s portfolios were mixed during the quarter, with a number rising in absolute terms, whilst others fell. The Global High Alpha portfolio returned -0.6% during the quarter, underperforming the benchmark by 1.2%. The underweight to the energy sector combined with slower than expected revenue growth from stocks in IT, healthcare and financials weighed on performance.

·  The Global Sustainable Equity portfolio delivered a return of -4.1% over the quarter, underperforming its benchmark by 4.7%. Many sustainable strategies struggled to outperform during the period due to the inherent ‘growth’ investment style of these funds. We believe the long-term proposition for sustainable stocks remains intact.

The Investments Manager said that Brunel were aware of this underperformance and expected them to be invited to attend either the February 2024 or June 2024 Panel meeting. He added that the reversal in the rates environment, from rising to falling, should, in isolation, be positive for these funds.

Jackie Peel referred to page 30 and asked for an explanation of the graph entitled ‘Weighted Average Carbon Intensity relative to benchmark’.

The Investments Manager replied that the graph shows the carbon footprint of these 3 equity mandates relative to the global market-capitalisation benchmark. He added that the PAB Passive Global Equities was the best of these three in these terms and explained that Global High Alpha has a significant underweight to the Energy Sector, while the Global Sustainable Fund exhibited a higher carbon intensity due to the energy transition nature of some of the underlying holdings.

The Head of Pensions said that Holcim, a Swiss cement manufacturer was a good example of this as a company that is currently high for carbon intensity, but has a credible plan to decarbonise.

Steve Turner added that Brunel remains on track to deliver their net-zero portfolio by 2050 and that companies contained within that would all be at different stages. He said that it was possible to have a company that was currently showing as performing badly in this area, but on a good trajectory to meet the intended target.

Jackie Peel asked why some figures would be getting worse.

Steve Turner replied that they could have agreed an allocation to a different model. He added that carbon intensity has risen and that the price of oil was on a rising trajectory. He proposed whether the Panel should have a future session with Brunel regarding the Sustainable Fund.

John Finch commented that over the last quarter the S&P 500 had risen by 19%, but that this was due predominantly to the ‘Magnificent 7’ stocks as without them the rise would have only been around 4%.

Steve Turner said that he felt they were within a period of such dramatic change and noted that historically the months of September and October are not great for investing. He added that the end of October saw a big reversal in some markets whilst a strong rally in equity took place during November.

He added that it would be interesting to see the end of year position and informed the Panel that the Actuary was in the process of updating the discount rate.

He stated that the USA accounts for around 60% of the global market and that there were concerns over the impact of the ‘Magnificent 7’ and that the impact of AI had increased this.

Jackie Peel referred to page 73 and asked if the impact on cashflow was expected to be negative or positive.

Steve Turner replied that they were expecting it to be negative.

The Head of Pensions added that it was currently positive, but they were expecting it to move to negative.

The Panel, having been satisfied that the public interest would be better served by not disclosing relevant information, RESOLVED, in accordance with the provisions of the Section 100(A)(4) of the Local Government Act 1972 that the public should be excluded from the meeting for this item of business, because of the likely disclosure of exempt information as defined in paragraph 3 of Part I of Schedule 12A of the Act as amended.

The Panel RESOLVED to:

i)  Note the information as set out in the reports.

ii)  Identify any issues to be notified to the Committee.