Watch our Chief Investment Officer, Mark Fawcett, discuss how markets and Nest funds have performed  in the months to the end of 2020. Mark also discusses his predictions for 2021 and what this year will have in store for Nest investments.

Over the calendar year 2020, our 2040 fund, which is representative of funds in our Growth stage, returned a gain of 8.2% despite volatility throughout the year and the market falls in the early parts of the year.

Global equities gained in q4 as a number of vaccine breakthroughs fostered hopes of a return to economic normality. Equity returns in emerging markets were particularly strong. Corporate bonds also enjoyed a fruitful quarter, outpacing government bonds and thus validating the Nest fixed interest strategy. Two further positive influences in December were firstly the greater certainty brought by the Brexit deal and secondly President Trump signing a new stimulus package which provides a lifeline to many Americans whose unemployment insurance was about to expire, and this package should help support the US economy in Q1 2021.

However, we expect volatility to continue in 2021 as markets react to good and bad news on vaccine rollouts, new virus strains and economic data. However, as long-term investors we are more concerned with the underlying trend for asset prices, which will be determined by expectations for 2022 and beyond. Big questions surround debt sustainability (for households, corporates and countries), the outlook for inflation and what happens to productivity. Twists and turns are to be expected as starting valuations and investor optimism are high.

As we have said in previous updates, the Nest investment approach has been designed to cope with volatility, as evidenced by the returns in 2020. Turbulent market conditions reinforce the importance of diversification and good risk management which are central to the Nest approach.

Our investment approach continues to gain external recognition. Recent awards include Ultimate Default Fund at the recent Corporate Adviser awards. Comments from the judges included ‘Our winner in the Ultimate Default fund category is a fund with strong risk-adjusted performance when compared to its peer group, with early and full ESG integration and good diversification. It’s a fund that is always seeking out new investment opportunities and its parent has registered as an asset manager to be able to hold assets directly – well done to Nest Retirement Date Funds.’

Through our robust investment governance arrangements Nest will continue 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. Our positive cashflow enabled us to buy equities at lower prices during the year which contributed to our strong returns.

As we continue to stress, 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 short term fluctuations and at Nest we take steps to protect members’ pots more 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.

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