Stakeholder Investment Bulletin An update from your Head of Investments Cockroaches Whenever you come across a cockroach, it is prudent to assume that it is the fugleman for a host of others. Thus, with Barclays’ reputation in the shredder, expect to see a procession of leading banks being fined for LIBOR-fixing. Of the naughty banks, Barclays may turn out to have been one of the least-culpable. Time will tell… “Done… for you, big boy” Why does the esoteric daily ritual of determining London Interbank Offered Rate matter so much? Because hundreds of trillions of high-value financial transactions are linked to it. Every day, sixteen banks are asked what interest rate they would have to pay to borrow (say) three-month money in Sterling. The highest and lowest four submissions are ignored, and the remaining eight averaged in order to arrive at the official LIBOR rate. The system appeared to operate well for twenty years from its inauguration in 1986. Problems really arose with the Credit Crunch of 2007. Banks became afraid to lend to one another, not knowing if they would be repaid. The interbank market dried up, and banks feared that, if they admitted the real rate they would have to pay, they would be fingered as vulnerable, with catastrophic consequences. So they lied, and put in lowball numbers. Barclays’ traders were, at one point, regularly reporting the highest interest rates of the sixteen reference banks, and so their submission was always filtered out. On the face of it, it made no difference what the Barclays number was. But it did: the following day a different bank would join the charade. One Guvnor, Two Men When Barclays started to copy others and aim for the middle quote, it displaced the fifth-highest bank (Bank X) from the middle eight, so the LIBOR average inched downwards, by one-eighth of the difference between Barclays’ and Bank X’s quotes. This increased the pressure on the new highest four banks to massage their submissions lower on the following day. By stages, LIBOR became significantly disconnected with reality. It was an open secret, with the conspirators not even having to speak to each other to maintain the deception. The flawed rules of the game provided the incentive to lie. Was Sir Mervyn King, Governor of the Bank of England, complicit in the matter? We don’t know, but both Marcus Agius and Bob Diamond tendered their resignation from Barclays.
More Bad News Lamentable corporate behaviour is not confined to banking; GlaxoSmithKline (GSK) has admitted marketing drugs using false claims, joining a shameful list of pharmaceutical companies to have been fined for similar offences. Much is expected from a company whose core business is to produce life-extending medicines, so there is a deep sense of disappointment whenever the managements of public companies so clearly fall short of accepted standards. GSK is the fourth-largest company in the London equity market, representing over 5% of the leading market index. Although our holding in that company is large in absolute terms, it is less than a market weighting would have been. Given the media furore over the LIBOR scandal, it is sobering that GSK’s $3bn fine dwarfed Barclays’. Responsible Investing Our style is to factor known risks into our portfolio selection process, with a view to reducing disappointing events. It can only work up to a point; without acting on insider information (which is illegal), we cannot protect our members from a rogue management. What we can, and regularly do, is to use our vote thoughtfully at company meetings, with a view to reducing management incentives to game the system. It has been gratifying to see others follow our example, and most observers believe that corporate management is cleaning up its act. Markets Since its nadir in May, the UK equity market has recovered around 7%, though it remains some 5% below the highest levels seen in March. What continues to amaze seasoned professionals is the low level of yields available from British government securities, with a scant 1.5% available from ten-year maturities. We are living in difficult times. The message that screams to us is the overarching need to save for retirement. Governments in the leading Western nations cannot realistically keep retirement benefits at their present levels as the Baby Boomers approach the end of their working lives, with the prospect of collecting benefits for some thirty years. If you seek to spend later life in comfort, be prepared to make provision now. Our professional investment team will look to help you navigate the choppy waters of the financial markets.
Vivian Huxley July 2012
Stakeholder Managed Funds Fund Objective The Forester Life Stakeholder Managed Funds follow a conservative investment philosophy, which aims to achieve steady medium to long-term growth consistent with stakeholder standards for ‘risk-controlled’ investment. The Funds invest in different types of securities to reduce fluctuations in market values. Normally between 50% and 60% of the Funds are invested in shares, which provide the opportunity for long-term growth. The balance of the Funds consists mainly of stocks which, by providing more stable, if generally lower investment returns, help to offset the investment risk from fluctuations in share values. A large proportion of these stocks (gilts) are guaranteed by the British Government, whilst some are index-linked gilts, which help protect against the effects of inflation.
Finally, the Funds hold a small proportion of cash in order to have the flexibility to take advantage of investment opportunities at short notice. The table below shows the performance of the Forester Life Balanced Fund, launched in October 1995, within the Mixed Investment 20-60% Shares Sector over 1, 3, 5 and 10 years. As the Forester Life Stakeholder Managed Funds are invested in the same pool of assets as the Forester Life Balanced Fund, we believe that the past performance of the Forester Life Balanced Fund will help you understand how the Forester Life Stakeholder Managed Funds 1 and 2, launched in January 2005, might have performed over the same period.
Sector comparison to 30 June 2012 - Mixed Investment 20-60% Shares Period
1 Year
3 Years
5 Years
10 Years
Forester Life Balanced Fund Ranking
87/299
60/250
36/178
4/29
Source: Citywire Please note that past performance should not be seen as an indication of future performance.
Fund Profile (at 30 June 2012) Association of British Insurers (ABI) Classification Sector: Mixed Investment 20-60% Shares
Top Ten Shares Holdings
%
Royal Dutch Shell ‘B’
8.2
Vodafone Group 5.2 HSBC Holdings
5.1
Asset Allocation (% Fund) BP 4.8 BG Group 4.1 GlaxoSmithKline 3.8
Gilts Shares
15% AstraZeneca 3.7
12%
Other Fixed Interest
53%
19% Index Linked Gilts
1% Cash
Rio Tinto
3.5
BHP Billiton
3.0
Standard Chartered
2.9
Fund Performance (at 30 June 2012) Stakeholder Managed Fund 1 Fund Size: £418m Launch Date: 1 January 2005
Stakeholder Managed Fund 2 Fund Size: £53.1m Launch Date: 1 January 2005
Growth to 30 June 2012
Growth to 30 June 2012
1 Year
3 Years
5 Years
10 Years
1 Year
3 Years
5 Years
10 Years
1.6%
29.9%
14.5%
69.8%
0.1%
26.4%
10.7%
53.9%
Single Year Performance The table below shows the annual growth rate over the past 5 years. The intention is to help you assess and compare performance between funds. Please refer to the important notes below.
Change in price of units over one year periods to end of June Period
2012
2011
2010
2009
2008
Stakeholder Managed Fund 1
1.6%
13.7%
12.4%
-5.6%
-6.5%
Stakeholder Managed Fund 2
0.1%
12.9%
11.8%
-6.6%
-6.1%
Cumulative Performance This shows the growth in unit prices of the Funds. Please refer to the important notes below. Forester Life Balanced Fund Performance - Growth in Unit Prices 2.80
2.60
2.40
Bid Prices £
2.20
2.00
1.80
1.60
1.40
1.20 Stakeholder Managed 1 1.00
Stakeholder Managed 2
0.80 Sep 95 Sep 96 Sep 97 Sep 98 Sep 99 Sep 00 Sep 01 Sep 02 Sep 03 Sep 04 Sep 05 Sep 06 Sep 07 Sep 08 Sep 09 Sep 10 Sep 11
Important Notes • As the Stakeholder Managed Funds were launched on 1 January 2005, the above graph and tables are based on the performance of the Forester Life Balanced Fund which follows an identical investment strategy and philosophy. In order to give an indication of how the Stakeholder Managed Funds could have performed, we have shown the change in prices of the Forester Life Balanced Fund since it was launched
the Forester Life Balanced Fund gives a good indication of how the Forester Life Stakeholder Managed Funds 1 and 2 might have performed over the same period. • The figures shown are calculated on a bid price basis (the price at which units are sold) with net income reinvested. However, with the Stakeholder Managed Funds, there is no difference between the prices at which units are bought or sold. • Please remember that, with a unit-linked investment, the value of your
on 1 October 1995, re-based and adjusted to reflect the 1.5% annual charge of
investment may go down as well as up, and you should remember that past
the Stakeholder Managed Funds 1 and 2. We believe that the past performance of
performance should not be seen as an indication of future performance.
July 2012 Update Stakeholder Standards One of the disciplines of successful investment is the determination to see beyond short term turbulence.
Further Information For further information please speak to your Forester Life adviser or contact our Customer Services Team:
Driven by Foresters conservative investment policy, our experienced investment managers continue to focus on leading UK equities and high quality bonds, aiming to achieve sustainable growth for the future. In addition, investors have the reassurance of knowing that Forester Life’s Stakeholder Funds meet the following stakeholder standards for ‘risk-controlled’ investment:
Customer Services Team, Forester Life, Foresters House, 2 Cromwell Avenue, Bromley BR2 9BF. T 0333 600 0333 8:30am to 5:00pm weekdays. Calls are charged at local rates. E service@foresters.co.uk
• Investments selected and managed to achieve a balance between risk and reward. • Investments diversified across a range of different asset classes, markets, sectors and securities, and suitable for the scheme. • Maximum 60% invested in shares and property. • Lifestyling strategy to reduce the investment risk in your plan’s later years by redirecting contributions and switching units to the Stakeholder Protection Fund 1 (applies to Child Trust Fund and Personal Pension Plan only).
Schemes that meet stakeholder conditions are not necessarily suitable investments nor do they offer any guarantee of performance. To check current unit prices simply visit our website foresters.com or phone the Unit Price Information Line free on 0800 990011.
Forester Life Ltd is authorised and regulated by the Financial Services Authority. Forester Life Ltd is registered in England number: 2997655. Registered Office: Forester Life Ltd, Foresters House, 2 Cromwell Avenue, Bromley BR2 9BF T 0333 600 0333 F 020 8628 3500 E service@foresters.co.uk foresters.com
DAC 2012313/FS/BR
09/12