Approach adopted by the Fund

The main features of the investment approach adopted by the Fund, are set out as follows:

Specialist asset managers for the Market-Linked Portfolio

The Market-Linked portfolio is the “default” portfolio into which all of the savings of members under age 55 will be invested. The trustees have appointed different asset managers for each asset class (equities, bonds and cash).

The Trustees are of the view that the specialist approach can be expected to deliver strong results in the long-term.

Investment Philosophy

The Trustees believe that over long measurement periods (typically 5 years and longer) investment markets are efficient and so the price of a traded asset is the most accurate indication of its underlying value.

However, over shorter time frames investment markets may be materially inefficient resulting in big and non-random disparities which cause the price of an asset to deviate from its underlying value. Such mispricing arises inter alia from:

  • Many investment managers adopt too short an investment horizon, which results in decision-making based largely on forecasting (which is notoriously difficult to get right consistently)
  • Many investment managers are over-confident of their abilities and will use short term results (which may be random or fashion driven) to predict long term trends
  • Most investment managers are subject to agent/principal conflicts. Often an investment manager will invest close to the benchmark as this minimizes the risk of under-performing the peer group (and ensures job preservation).
  • Some investment managers are so large that they are unable to exploit the full opportunity set, thus leaving opportunities for their smaller competitors.

If markets are efficient over the long term, it follows that an intelligent and patient investor can earn superior returns over the long term by exploiting these short-term mispricings. 

No single investment approach is necessarily superior to another and accordingly the Fund will invest with a number of investment managers in order to diversify by investment approach e.g. value, growth, momentum and quality investment styles. 

The Trustees believe in the benefits of diversification and that the risk of poor investment outcomes can be mitigated by allocating the investments of the Fund between different asset classes. Further diversification is also achieved within a more risky asset class by allocating the assets to more than one investment manager.  

The Trustees accept that in order to make provision towards retirement a member needs to earn a reasonable return compared to inflation on his/her retirement savings. The success of the investment strategy will therefore primarily be measured relative to inflation as opposed to the performance of the peer group.