| 1 year | 3 year | 10 year | |
|---|---|---|---|
| Lothian Pension Fund | -3.6 % | +10.1% | +5.7 % |
| Benchmark | -4.4 % | +9.4 % | +5.1 % |
The Fund delivered a return of -3.6% over the year. Equity market returns around the world delivered mixed returns. Western markets (UK, North America and Europe) were hit by the credit crisis and fears of global economic slow down. However, Pacific and Emerging markets continue to give positive returns. Resource companies continued to deliver strong performance as the demand and cost of natural resources continued to rise. The financial, healthcare and consumer related sectors delivered negative returns.
Bond markets were extremely volatile as a result of the credit crisis and increasing concerns over future inflation. Investors sought safety in government bonds, in particular UK index linked government bonds which were the best performing asset class returning +13.1% over the year. UK corporate bonds, however, were severely affected returning – 3.8% over the year.
After many years of strong growth, the UK property market suffered a significant set-back, falling over 10%. The Fund’s policy of diversifying away from the UK into European and global property markets helped the Fund. The Fund outperformed its benchmark over the year by 0.8%. This was a result of stock selection in a number of areas (including UK and Pacific equities, bonds, and property), an overweight position in cash during the year as well as the Fund’s exposure to alternative investments.
The Fund’s medium term performance is strong. Equity markets have been strong over the three years, particularly in the Far East and Emerging markets. The Fund has outperformed its benchmark over the period by 0.7%.
The Fund’s long term performance remains ahead of increases in inflation and average earnings. Returns from equity markets over the 10 year period are below those of bonds and cash. Pacific and emerging markets equities have been the strongest regions. Despite its recent setback, property remains the strongest asset class with annualised return of +10.7%. The Fund’s return over the period has been ahead of the benchmark over the 10 year period to 31 March 2008.
The Fund returned 0.4% over the year and performed strongly relative to its benchmark over the year, outperforming by 2.2%. This was largely due to Baillie Gifford’s stock selection in North American, Pacific and Emerging market equities. Property performed poorly returning -18% over the year. The medium term performance is strong, delivering annualised returns of +10.9% and long term performance is good due to stock selection. Returns remain ahead of increases in inflation and average earnings.
The fund had a positive performance at 6.1%, however, it underperformed its benchmark over the year by 0.4%. This was largely a result of an overweight position in property which performed poorly compared to the rest of the fund.
At the start of this financial year, the investment strategy of the fund was 45% equities, 45% bonds and 10% property. Following an investment strategy assesment the overall allocation to equities was reduced to 30% achieved largely by selling UK equities. Following the change in strategy, financial markets were very volatile due to the credit crisis. The switch in investment strategy was implemented at a very opportune time and has protected part of the fund from the financial turmoil.
For more information on all our Funds, please see our Annual Report and Accounts 2007/08 .[PDF]