Volatility on the world’s stock markets has continued in April, mainly because of the coronavirus pandemic. However, share prices have rallied from their mid-March lows. World stock markets are around 10 per cent to 20 per cent lower than at the start of 2020. Despite the bad economic news, investors are trying to look through the crisis to the recovery.
The turbulent market conditions over the past few months have reinforced the importance of diversification and good risk management. More sophisticated investment strategies are likely to weather difficult markets better than those that rely too heavily on a single asset class, like equities.
Nest’s investment approach means members retiring this year, or in the next few years, have been protected to a large degree from the current market volatility. These funds also show positive annualised returns over the last three- and five-year periods.
|Investment returns as at 30.04.2020*
*Annualised total return net of Nest annual management charge
Most of our members will be in what we call the ‘growth phase’ of our investment approach, for example those expecting to retire in 2040. Here Nest’s diversified investment strategy has meant that these members have not experienced such extreme falls as seen in world stock markets. These members also have time to recover losses and average annualised returns over the last three- and five-year periods are still positive.
Nest’s ‘foundation phase’ is designed to protect young savers from volatility in the first few years of their saving. An example of how this has worked would be our 2061 fund, where our lower risk approach for those new to pension saving has meant lower falls in recent months.
Nest has robust investment governance arrangements in place to monitor the market and make rebalancing decisions. We do not do tactical asset allocation, nor do we deploy automated or mechanistic algorithms in our default strategy. Rebalancing decisions are made within the governance arrangements in place between our Trustee Investment Committee and our FCA regulated subsidiary, Nest Invest.
We are using our substantial cash inflows to maintain our portfolios broadly in line with target asset allocations, notwithstanding current constraints on property funds. This includes adding shares, so members benefit when the recovery comes. However, we take a cautious view of the recent equity rally as the economic impact of lockdowns is only just starting to be quantified. There also remains the lack of a vaccine and the risk of a second wave of infections. We are taking steps to lock in the recent market gains for members retiring over the next few years.
For most people pension saving is a long game – people can be saving with Nest for up to 40 or even 50 years, so it’s important not to forget the bigger picture. Younger savers should comfortably ride out shorter term fluctuations and at Nest we take steps to protect members’ pots as they get closer to retirement. Our diversified investment approach is designed to cope with periods of uncertainty and smooth out some of the sharper market rises and falls.
For more information on how our funds have performed, please read our Quarterly Investment Report for a full update.
Please note we are publishing these updates in light of the current unprecedented situation and we will revert to just publishing updates within the normal quarterly reporting timeframes in due course. However, if you would still like to get daily performance of Nest’s main growth phase default fund please see Morningstar/Trustnet and for all daily unit prices for each month please see our website