Volatility has remained high since the onset of the pandemic and is expected to remain as news headlines swing from positive to negative about economic and virus containment progress. Concern remains around infection rates in many parts of the world but the path back to some kind of normality in Europe continued during June, along with positive news about virus treatment drug trials.

Economic news has also been mixed with some consumer indicators stronger, more positive sentiment around the USA – China Phase 1 trade deal, Brexit negotiations and a possible V-shaped recovery back under discussion. However, less positively, there are worries over looming trade tensions between the EU and US, particularly over a digital tax on global digital companies, plus jobless figures decreased by less than the markets expected. The IMF also predicted global growth would reduce this year by more than previously thought. Most developed world stock markets posted single digit gains over the month of June and all the return figures in our table below are now positive.

As we have said in previous updates, the turbulent market conditions over the past few months have reinforced the importance of diversification and good risk management. It continues to be the case that Nest’s investment approach means members retiring this year or in the next few years have been protected to a large degree from recent market volatility.

Investment returns, as at 30 June 2020

3 months 1 year 3 years (annualised) 5 years (annualised)
Nest 2020 Retirement Fund 0.9 1.1 1.4 2.9
Nest 2021 Retirement Fund 5.4 1.8 3.2 5.6
Nest 2022 Retirement Fund 6 1.8 3.3 6
Nest 2023 Retirement Fund 6.7 1.8 3.5 6.3
Nest 2024 Retirement Fund 7.7 2.1 3.8 6.8
Nest 2040 Retirement Fund 12.1 1.9 4.6 7.9
Nest 2061 Retirement Fund 9.2 2.7 4.3 6.5

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 will be invested in the fund of that name. Market recovery means that Nest growth funds are now showing a strong bounce back over the 3 months to end of June with positive one-year returns.

Nest’s ‘foundation phase’ is designed to dampen volatility for young members in the first few years of their saving. An example of how this has worked is shown in the performance figures for our 2061 fund.

Nest has robust investment governance arrangements in place to monitor the market and make rebalancing decisions. We are using our substantial cash inflows to maintain our portfolios broadly in line with target asset allocations, notwithstanding current constraints on property funds. We take a cautious view of the recent equity rally as the economic impact of lockdowns is only just starting to be quantified. We are limiting exposure to emerging market equities and debt as we believe the pandemic continues to pose greater risks in these countries.  We have also taken 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.

The value of investments may go down as well as up and the return of your investment is not guaranteed. Fluctuations in financial markets, currencies and other risks may cause fluctuations in the value of investments. Any fund objective or target should not be considered as guarantee of performance of any fund. Derivatives may also be used for efficient portfolio management purpose.
This document does not constitute advice on whether to invest in these funds. Neither this document nor any data contained within this document is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. You may wish to consult with an appropriately qualified financial adviser in relation to your investments and any change to them.
This document has been created by National Employment Savings Trust (Nest). This document is valid as at the date of its publication. This document and data contained within this document is provided for information purposes only and may not be reproduced or extracted or used for any other purpose.
This document includes and/or is based on data that is owned by and obtained from third party sources. Data from third party sources is provided “as is” and is not verified by Nest. Additional disclaimers which apply to the third party data are available on our website nestpensions.org.uk
No undertaking is given, or representation or warranty is made, express or implied, by Nest or by any third party source that the information in this document is current, accurate, complete or error free, and the information must not be relied upon as such. Neither the third party sources nor Nest accept responsibility for any loss caused to any recipient of this document as a result of any error, inaccuracy or incompleteness of this document or as a result of any third party data.
© Nest Corporation 2020