Investment impact – the evolution of the UKRF Diversified Growth Fund
For UKRF members who have retirement savings invested in the UKRF Diversified Growth Fund (the DGF), including the UKRF Lifestyle Fund range
The Trustee of the UKRF is planning on making changes to the investments in the DGF from November 2020 to reflect the application of the Trustee’s responsible investment (RI) policy to the existing DGF investment strategy. The Trustee believes that this will have a positive impact on the long-term performance as sustainable business practices lead to better investment decisions and ultimately improve returns for members.
You do not need to take any action as these changes will happen automatically. However, you should read on to understand the changes that are being made.
Background
The DGF is part of the UKRF Lifestyle Fund range (the Lifestyle Fund), which is the default investment fund for Defined Contribution (DC) retirement savings in the UKRF. It is also available as a self-select investment option in the UKRF.
The Trustee has recently reviewed its policy on RI. RI is an approach to managing investments that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns. RI includes considering environmental factors (such as climate change), but it is much more than just that. It also questions how well companies are governed and how companies impact wider society (for example, labour practices and gender balance).
The UKRF already incorporates the Trustee’s RI policy into its investment decision making. By taking this approach, the UKRF holds investments that, for example, acknowledge climate risk and contribute to meeting climate change targets while also being financially sound and consistent with the Trustee’s long-term strategy.
In addition, the Trustee recently surveyed members about their views on RI and related matters, which revealed that UKRF members who responded are interested in this increasingly important area. See RI survey results.
What changes are being made to the DGF?
At present, the way in which equities and bonds within the DGF are chosen is mainly driven by the size (or market capitalisation) of the relevant equity or bond. In future, when selecting equities and bonds, there will be additional focus on the RI characteristics of the company or country issuing the equity or bond when buying and selling these investments.
The changes to the DGF will result in the following:
Integrating ESG
ESG criteria will be used to screen the investments in the DGF and identify material ESG risks and future growth opportunities (for example, reducing exposure to companies with high carbon emissions, natural resource conservation, integration with communities in which they operate, executive pay and relationship with employees). This will create better protection against ESG risks, which over the longer term should improve returns and provide you with a better outcome for your retirement savings.
Stewardship
The DGF manager, BlackRock, will proactively vote and engage with the entities and markets in which it invests on behalf of the Trustee. It will consider a range of issues including ESG risk and the transition to a lower carbon economy. It will also work to enhance disclosures to help improve understanding of how actions taken by companies can address these issues.
In addition to the above changes, the Trustee will ensure it continues not to invest in companies with involvement in activities that do not demonstrate good corporate practice or which violate internationally recognised laws or conventions.
The Trustee believes that there is compelling evidence that sustainable business practices lead to better returns and outcomes in the long-term. It therefore aims to further integrate an assessment of these practices within its investment processes for your retirement savings. As the DGF forms part of the Lifestyle Fund, this Fund will also be affected by the changes.
There are no other changes being made to your investment options in the UKRF.
Will there be a cost?
The Trustee believes the changes will contribute positively to the performance of the DGF and hence improve member outcomes and expose you to lower risks, justifying the small costs associated with this change. It will make sure that the changes are carried out in the most efficient, cost effective way possible.
There will be a one-off transaction cost for making these changes of around 0.15%. This means that if you have £1,000 invested in the DGF, this will amount to a cost of around £1.50. It is expected that ongoing costs will not be affected by this change. These are best estimates and the actual costs will be reflected in the value of your DGF holding. If you are within 10 years of the target date on your Lifestyle Fund, the costs will be lower as the DGF makes up a smaller proportion of your overall Lifestyle Fund holding.
The Trustee expects that investments with improved ESG characteristics will perform better, and face less risks, in the long term, compared to investments with weaker ESG characteristics and less focus on sustainable long-term practices.
When will these changes take place?
The changes will take place from November 2020. The DGF will remain open for investment as usual and will continue to be valued every working day.
What action do I need to take?
You don’t have to take any action. However, we would recommend that you regularly review your DC retirement savings investment choices to make sure that they are still right for you.
How do I review or change my DC investments?
You can review or make changes to your investment options in the UKRF by visiting ePA, the pensions website.
More information is available about the DC fund range.
Take a look at:
We recommend that you seek your own FCA regulated financial advice when deciding which investment options to choose and which funds are suitable and appropriate for your needs.
What if I have queries?
If you have any queries that are not answered by the Investment information section on ePA, please contact the Barclays Team at Willis Towers Watson.
Review or change your DC investments
Go to ePA to review or change your DC investments.
See the Responsible Investment survey results
Read the results of the Responsible Investment survey which asked members with defined contribution (DC) investments about their views on Responsible Investment.