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© 2016 Defaqto. Private and confidential.
Risk MappingRoyal London Governed Portfolios
March 2016
© 2016 Defaqto. Private and confidential.
Contents
Executive Summary p3
Governed Portfolio 1 p4
Governed Portfolio 2 p5
Governed Portfolio 3 p6
Governed Portfolio 4 p7
Governed Portfolio 5 p8
Governed Portfolio 6 p9
Governed Portfolio 7 p10
Governed Portfolio 8 p11
Governed Portfolio 9 p12
2
© 2016 Defaqto. Private and confidential.
Executive Summary
Mapping
We conclude the following mappings for Royal London’s Governed Portfolio range:
Assessment
Our approach involved using both quantitative and qualitative inputs in order to risk-map a fund to the Defaqto Scheme:
• Historic volatility of the fund
• Forecast the fund’s future volatility using Moody’s stochastic model
• Discussion with the fund manager
The method that we use requires us to take the highest of the relevant historic and stochastic volatilities in order to assess the band in which the fund should be mapped to.
Since our profiles are overlapping and not contiguous, we have some discretion as to whether a fund maps to the upper or the lower profile of the highest data point.
3
14th March 2016
Our assessment has been considered by our investment committee, and has taken into account some of Royal London’s suggestions when arriving at our mappings.
Investment Committee Summary
Historic
Past volatilities of up to 5 years were calculated using performance figures supplied by Royal London.
Future
Future volatilities were calculated using SAA and TAA holdings provided by Royal London, and using Moody’s WSG stochastic model.
GP1 GP2 GP3 GP4 GP5
5 4 2 6 5
GP6 GP7 GP8 GP9
3 8 6 4
© 2016 Defaqto. Private and confidential.
Royal London Governed Portfolio 1
Mandate
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with a cautious risk attitude over a long time period.
Investment Committee Notes
• Fund reviewed on 14th March 2016.
• We used Royal London’s supplied portfolio returns and asset allocation to calculate the stochastic measure of volatility.
• Royal London have advised that the Strategic Asset Allocations of the Governed Portfolio range is currently under appraisal. As the existing risk framework and management process will remain in place it is anticipated this will have minimal effect on the range’s current risk rating levels
• This fund could either be mapped as a 5 or 6. Royal London believes that this fund is better classified as a 5.
Conclusion
We have mapped this fund as a 5.
Next Review
June 2016.
4
Mapped to a 5 on 14th March 2016.1
0.00%
-
4.67%
3
4.67%
-
8.25%
5
8.25%
-
11.83
%
7
11.83
% -
15.41
%
9
15.41
% -
19.00
%
2
2.88%
-
6.46%
4
6.46%
-
10.04
%
6
10.04
%
-
13.62
%
8
13.62
% -
17.20
%
10
17.20
% -
20.79
%
4.67%
2.88%
0.00%
6.46%
8.25%
11.83%
10.04%
13.62%
15.41%
17.20%
19.00%
20.79%
H1
TAA
Measure Source Abbrev Vol%
Historic 1 Yr Royal London H1 8.1
Historic 3 Yr Royal London H3 6.9
Historic 5 Yr Royal London H5 7.2
Strategic AA Royal London SAA 10.7
Tactical AA Royal London TAA 11.7
* Asset allocation supplied by Royal London with
volatilities calculated by Defaqto
SAA
H3
H5
© 2016 Defaqto. Private and confidential.
Royal London Governed Portfolio 2
Mandate
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with a cautious risk attitude over a medium time period.
Investment Committee Notes
• Fund reviewed on 14th March 2016.
• We used Royal London’s supplied portfolio returns and asset allocation to calculate the stochastic measure of volatility.
• Royal London have advised that the Strategic Asset Allocations of the Governed Portfolio range is currently under appraisal. As the existing risk framework and management process will remain in place it is anticipated this will have minimal effect on the range’s current risk rating levels
• This fund could either be mapped as a 4 or 5. Royal London believes that this fund is better classified as a 4.
Conclusion
We have mapped this fund as a 4.
Next Review
June 2016.
5
Mapped to a 4 on 14th March 2016.1
0.00%
-
4.67%
5
8.25%
-
11.83
%
7
11.83
% -
15.41
%
9
15.41
% -
19.00
%
2
2.88%
-
6.46%
4
6.46%
-
10.04
%
6
10.04
%
-
13.62
%
8
13.62
% -
17.20
%
10
17.20
% -
20.79
%
4.67%
2.88%
0.00%
6.46%
8.25%
11.83%
10.04%
13.62%
15.41%
17.20%
19.00%
20.79%
H1
TAA
Measure Source Abbrev Vol%
Historic 1 Yr Royal London H1 6.7
Historic 3 Yr Royal London H3 5.7
Historic 5 Yr Royal London H5 5.9
Strategic AA Royal London SAA 8.9
Tactical AA Royal London TAA 9.8
* Asset allocation supplied by Royal London with
volatilities calculated by Defaqto
SAA
H3H5
3
4.67%
-
8.25%
© 2016 Defaqto. Private and confidential.
3
4.67%
-
8.25%
Royal London Governed Portfolio 3
Mandate
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with a cautious or moderately cautious risk attitude over a short time period.
Investment Committee Notes
• Fund reviewed on 14th March 2016.
• We used Royal London’s supplied portfolio returns and asset allocation to calculate the stochastic measure of volatility.
• Royal London have advised that the Strategic Asset Allocations of the Governed Portfolio range is currently under appraisal. As the existing risk framework and management process will remain in place it is anticipated this will have minimal effect on the range’s current risk rating levels
• This fund could either be mapped as a 2 or 3. Royal London believes that this fund is better classified as a 2.
Conclusion
We have mapped this fund as a 2.
Next Review
June 2016.
6
Mapped to a 2 on 14th March 2016.1
0.00%
-
4.67%
5
8.25%
-
11.83
%
7
11.83
% -
15.41
%
9
15.41
% -
19.00
%
2
2.88%
-
6.46%
4
6.46%
-
10.04
%
6
10.04
%
-
13.62
%
8
13.62
% -
17.20
%
10
17.20
% -
20.79
%
4.67%
2.88%
0.00%
6.46%
8.25%
11.83%
10.04%
13.62%
15.41%
17.20%
19.00%
20.79%
H1
TAA
Measure Source Abbrev Vol%
Historic 1 Yr Royal London H1 3.2
Historic 3 Yr Royal London H3 3.3
Historic 5 Yr Royal London H5 3.3
Strategic AA Royal London SAA 5.6
Tactical AA Royal London TAA 6.1
* Asset allocation supplied by Royal London with
volatilities calculated by Defaqto
SAA
H3H5
© 2016 Defaqto. Private and confidential.
3
4.67%
-
8.25%
Royal London Governed Portfolio 4
Mandate
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with a moderately cautious or balanced risk attitude over a long time period.
Investment Committee Notes
• Fund reviewed on 14th March 2016.
• We used Royal London’s supplied portfolio returns and asset allocation to calculate the stochastic measure of volatility.
• Royal London have advised that the Strategic Asset Allocations of the Governed Portfolio range is currently under appraisal. As the existing risk framework and management process will remain in place it is anticipated this will have minimal effect on the range’s current risk rating levels
• This fund could either be mapped as a 6 or 7. Royal London believes that this fund is better classified as a 6.
Conclusion
We have mapped this fund as a 6.
Next Review
June 2016.
7
Mapped to a 6 on 14th March 2016.1
0.00%
-
4.67%
5
8.25%
-
11.83
%
7
11.83
% -
15.41
%
9
15.41
% -
19.00
%
2
2.88%
-
6.46%
4
6.46%
-
10.04
%
6
10.04
%
-
13.62
%
8
13.62
% -
17.20
%
10
17.20
% -
20.79
%
4.67%
2.88%
0.00%
6.46%
8.25%
11.83%
10.04%
13.62%
15.41%
17.20%
19.00%
20.79%
H1
TAA
Measure Source Abbrev Vol%
Historic 1 Yr Royal London H1 9.1
Historic 3 Yr Royal London H3 7.7
Historic 5 Yr Royal London H5 8.5
Strategic AA Royal London SAA 12.5
Tactical AA Royal London TAA 13.5
* Asset allocation supplied by Royal London with
volatilities calculated by Defaqto
SAA
H3
H5
© 2016 Defaqto. Private and confidential.
3
4.67%
-
8.25%
Royal London Governed Portfolio 5
Mandate
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with a moderately cautious, balanced or moderately adventurous risk attitude over a medium time period.
Investment Committee Notes
• Fund reviewed on 14th March 2016.
• We used Royal London’s supplied portfolio returns and asset allocation to calculate the stochastic measure of volatility.
• Royal London have advised that the Strategic Asset Allocations of the Governed Portfolio range is currently under appraisal. As the existing risk framework and management process will remain in place it is anticipated this will have minimal effect on the range’s current risk rating levels
• This fund could either be mapped as a 5 or 6. Royal London believes that this fund is better classified as a 5.
Conclusion
We have mapped this fund as a 5.
Next Review
June 2016.
8
Mapped to a 5 on 14th March 2016.1
0.00%
-
4.67%
5
8.25%
-
11.83
%
7
11.83
% -
15.41
%
9
15.41
% -
19.00
%
2
2.88%
-
6.46%
4
6.46%
-
10.04
%
6
10.04
%
-
13.62
%
8
13.62
% -
17.20
%
10
17.20
% -
20.79
%
4.67%
2.88%
0.00%
6.46%
8.25%
11.83%
10.04%
13.62%
15.41%
17.20%
19.00%
20.79%
H1
TAA
Measure Source Abbrev Vol%
Historic 1 Yr Royal London H1 7.9
Historic 3 Yr Royal London H3 6.7
Historic 5 Yr Royal London H5 7.2
Strategic AA Royal London SAA 10.6
Tactical AA Royal London TAA 11.5
* Asset allocation supplied by Royal London with
volatilities calculated by Defaqto
SAA
H3H5
© 2016 Defaqto. Private and confidential.
Royal London Governed Portfolio 6
Mandate
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with a balanced or moderately adventurous risk attitude over a short time period.
Investment Committee Notes
• Fund reviewed on 14th March 2016.
• We used Royal London’s supplied portfolio returns and asset allocation to calculate the stochastic measure of volatility.
• Royal London have advised that the Strategic Asset Allocations of the Governed Portfolio range is currently under appraisal. As the existing risk framework and management process will remain in place it is anticipated this will have minimal effect on the range’s current risk rating levels
• This fund could either be mapped as a 3 or 4. Royal London believes that this fund is better classified as a 3.
Conclusion
We have mapped this fund as a 3.
Next Review
June 2016.
9
Mapped to a 3 on 14th March 2016.1
0.00%
-
4.67%
3
4.67%
-
8.25%
5
8.25%
-
11.83
%
7
11.83
% -
15.41
%
9
15.41
% -
19.00
%
2
2.88%
-
6.46%
4
6.46%
-
10.04
%
6
10.04
%
-
13.62
%
8
13.62
% -
17.20
%
10
17.20
% -
20.79
%
4.67%
2.88%
0.00%
6.46%
8.25%
11.83%
10.04%
13.62%
15.41%
17.20%
19.00%
20.79%
H1
TAA
Measure Source Abbrev Vol%
Historic 1 Yr Royal London H1 4.8
Historic 3 Yr Royal London H3 4.4
Historic 5 Yr Royal London H5 4.8
Strategic AA Royal London SAA 7.0
Tactical AA Royal London TAA 7.7
* Asset allocation supplied by Royal London with
volatilities calculated by Defaqto
SAA
H3H5
© 2016 Defaqto. Private and confidential.
Royal London Governed Portfolio 7
Mandate
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with a moderately adventurous or adventurous risk attitude over a long time period.
Investment Committee Notes
• Fund reviewed on 14th March 2016.
• We used Royal London’s supplied portfolio returns and asset allocation to calculate the stochastic measure of volatility.
• Royal London have advised that the Strategic Asset Allocations of the Governed Portfolio range is currently under appraisal. As the existing risk framework and management process will remain in place it is anticipated this will have minimal effect on the range’s current risk rating levels
• This fund could either be mapped as a 7 or 8. Royal London believes that this fund is better classified as a 8.
Conclusion
We have mapped this fund as a 8.
Next Review
June 2016.
10
Mapped to a 8 on 14th March 2016.1
0.00%
-
4.67%
5
8.25%
-
11.83
%
7
11.83
% -
15.41
%
9
15.41
% -
19.00
%
2
2.88%
-
6.46%
4
6.46%
-
10.04
%
6
10.04
%
-
13.62
%
8
13.62
% -
17.20
%
10
17.20
% -
20.79
%
4.67%
2.88%
0.00%
6.46%
8.25%
11.83%
10.04%
13.62%
15.41%
17.20%
19.00%
20.79%
H1
TAA
Measure Source Abbrev Vol%
Historic 1 Yr Royal London H1 10.1
Historic 3 Yr Royal London H3 8.6
Historic 5 Yr Royal London H5 9.9
Strategic AA Royal London SAA 14.7
Tactical AA Royal London TAA 14.8
* Asset allocation supplied by Royal London with
volatilities calculated by Defaqto
SAA
H3
H5
3
4.67%
-
8.25%
© 2016 Defaqto. Private and confidential.
3
4.67%
-
8.25%
Royal London Governed Portfolio 8
Mandate
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with an adventurous risk attitude over a medium time period.
Investment Committee Notes
• Fund reviewed on 14th March 2016.
• We used Royal London’s supplied portfolio returns and asset allocation to calculate the stochastic measure of volatility.
• Royal London have advised that the Strategic Asset Allocations of the Governed Portfolio range is currently under appraisal. The existing risk framework and management process will remain in place so it is anticipated that this will have minimal effect on the range’s current risk rating levels
• This fund’s TAA indicates a mapping of level 7 or 8. However, the SAA of the fund indicates a 6 level and Royal London believe a mapping of 6 is most appropriate. The fund has a short-to-medium term positioning overweight in equity, high yield bonds and property due to attractive valuations vs. lower risk corporate and inflation-linked bonds
• This fund could either be mapped as a 7 or 8. Royal London believes that this fund is better classified as a 6.
Conclusion
We have mapped this fund as a 6.
Next Review
June 2016.
11
Mapped to a 6 on 14th March 2016.1
0.00%
-
4.67%
5
8.25%
-
11.83
%
7
11.83
% -
15.41
%
9
15.41
% -
19.00
%
2
2.88%
-
6.46%
4
6.46%
-
10.04
%
6
10.04
%
-
13.62
%
8
13.62
% -
17.20
%
10
17.20
% -
20.79
%
4.67%
2.88%
0.00%
6.46%
8.25%
11.83%
10.04%
13.62%
15.41%
17.20%
19.00%
20.79%
H1
TAA
Measure Source Abbrev Vol%
Historic 1 Yr Royal London H1 9.3
Historic 3 Yr Royal London H3 7.8
Historic 5 Yr Royal London H5 8.7
Strategic AA Royal London SAA 12.7
Tactical AA Royal London TAA 13.7
* Asset allocation supplied by Royal London with
volatilities calculated by Defaqto
SAA
H3
H5
© 2016 Defaqto. Private and confidential.
3
4.67%
-
8.25%
Royal London Governed Portfolio 9
Mandate
This portfolio aims to deliver above inflation growth in the value of the fund at retirement, whilst taking a level of risk consistent with an adventurous risk attitude over a short time period.
Investment Committee Notes
• Fund reviewed on 14th March 2016.
• We used Royal London’s supplied portfolio returns and asset allocation to calculate the stochastic measure of volatility.
• Royal London have advised that the Strategic Asset Allocations of the Governed Portfolio range is currently under appraisal. As the existing risk framework and management process will remain in place it is anticipated this will have minimal effect on the range’s current risk rating levels
• This fund could either be mapped as a 4 or 5. Royal London believes that this fund is better classified as a 4.
Conclusion
We have mapped this fund as a 4.
Next Review
June 2016.
12
Mapped to a 4 on 14th March 2016.1
0.00%
-
4.67%
5
8.25%
-
11.83
%
7
11.83
% -
15.41
%
9
15.41
% -
19.00
%
2
2.88%
-
6.46%
4
6.46%
-
10.04
%
6
10.04
%
-
13.62
%
8
13.62
% -
17.20
%
10
17.20
% -
20.79
%
4.67%
2.88%
0.00%
6.46%
8.25%
11.83%
10.04%
13.62%
15.41%
17.20%
19.00%
20.79%
H1
TAA
Measure Source Abbrev Vol%
Historic 1 Yr Royal London H1 6.4
Historic 3 Yr Royal London H3 5.6
Historic 5 Yr Royal London H5 6.1
Strategic AA Royal London SAA 9.0
Tactical AA Royal London TAA 9.7
* Asset allocation supplied by Royal London with
volatilities calculated by Defaqto
SAA
H3
H5