Video Risk-Managed Portfolios: five years of resilience in turbulent times

(0:05) Niall Aitken: Good morning, welcome to our webinar marking the 5th anniversary of our Risk-Managed Portfolio range. We know how important a long and successful track record is to selecting a multi asset proposition and we are delighted that we have smashed through the five year barrier with great performance and improving scale. So we're delighted that you can join us this morning as we talk through a presentation that we're calling Five Years of Resilience in Turbulent Times. That is a grandiose title to what has been a challenging period for the market and the funds, and that our funds have weathered extremely well and we're delighted to take you through the detail of that today. Before we get in, I'll introduce myself as Niall Aitken, Head of Investment Strategy in the investment proposition team here and I'll be delighted to be your host today. And we'll be introducing the day-to-day fund managers, Anthony McDonald and Daniel Matthews, who will take you through different sections of her webinar this morning, but a little bit of housekeeping before we get in.

If we could move on one slide, and the housekeeping would be there are no planned fire drills this morning. So well, I'm only joking. That's a that's an old COVID joke. Apologies for that one. But Anthony is in the office, so if you see him running for the stairs, apologies Daniel and I'll take over. We're at home. But we have 3 learning objectives today. The first two are looking in the backward lens a little bit, looking at how asset allocation decisions have been taken within the team and how that's contributed to the resilience of the portfolio through turbulent conditions and a deeper dive into the performance of the range and some of the key drivers of performance success. Anthony will cover both of those areas and then Dan will look at the emerging themes that we see the opportunities for the future. But before we get into that, I'm going to do a little bit of a quick recap on the construct of the range themselves and the design and strategy of the range and then we'll pass over to Ant and get into the meat of the presentation. But I know it's very important. So I'll mention at this stage the CPD certificate for this morning will be published in the chat at the end of the session - and do please post questions in the in the discussion on the chat as we go, Dan and I will be monitoring those and we'll come to them at the end of the session and we've got left a bit of time for that. So please do ask away. Rest assured that we'll review them and cover them at the end in the Q&A session. So without further ado, we'll crack on.

OK. As I already mentioned, we have three lead portfolio managers running the funds on a day-to-day basis led by Anthony McDonald with Dan and Andy supporting and in the strategy supporting the fund. We are delighted with the way that the funds have grown in AUM and recognise that five years is a key barrier to adoption of the range as well. So we've been ecstatic with the growth to £800 million in the funds, I think we might be about £880m as of this morning, but there we go and with over 16,000 customers invested and processes are used in the broader management of about £21 billion, which hopefully gives confidence in the scale and impact of the team's reach here at Aegon.

As I said, just a quick recap on the design of the fund range. Now within the Risk-Managed Portfolio range, they are single fund options offering a portfolio in a box as we say, with that box being structured as an OEIC and therefore available across pension, ISA and GIA products. There are 6 funds in the range sitting across the risk spectrum, with fund one being at the lower end of the risk spectrum and fund six at the higher end with regular increases in exposure to growth-seeking assets throughout that range. The range is built using passive underlying building blocks to keep the structure of the funds pretty simple and straightforward and to keep costs low with then active asset allocation coming from Ant and team with external support all leading into a really competitive fixed OCF package at 25 basis points. That's no additional expenses in that solution and that's a fixed OCF of 25 basis points or 0.25% there we are. And of course, I mentioned simple funds and construction and we want these funds to be able to be used as seamlessly as possible within your fund selection processes. And we know how important external risk rating solutions are in that range and we have the funds rated by all the managers shown in screens for Dynamic Planner, Defaqto, Synaptic, FinaMetrica and EV and if there are others that emerge then we will look on a case by case basis to add those as required to support the use of the funds as broadly as possible. Now this chart just shows a little bit of how the funds forward-looking risk targets are constructed and where the funds set across the risk spectrum. So the chart just shows the volatility ranges and that's the forward-looking volatility. So really the team's view with external support of what they expect to the total volatility of each of the funds in the range to be in the future and we check on a quarterly basis as those assumptions are updated to make sure that the funds are still positioned within the target ranges and make sure that then that sequential increase in risk across the range continues to happen as the markets evolve in asset classes, expectations change with the team adjusting the portfolio's and rebalancing as required as those expectations change. So really you can be sure that the guys will be all over managing the risk levels of the funds and making updates and changes as required. OK. So that's hopefully given you a whistle stop tour of what we're trying to do with the funds and how they're constructed. And I will now pass over to Anthony to take you through what I would say would be the far more interesting bit of the session as we look at how a few different case studies of how the team have added value in positioning the funds through some turbulent periods. Anthony, over to you.

McDonald, Anthony (7:50) Thanks, Niall. Thank you. Hello, everyone. Super to speak to you. Appreciate you taking the time with us this morning. It does seem, I suppose it is a long time since we launched these funds, working from home in the in the middle of the pandemic. They were originally going to be launched the week that everyone was sent home. So that's why they pushed out until July, delighted that they've grown strongly and broadly done what they said on the tin. And that's the key point from this summary slide here, which is as you'll see as we go through. We've been disciplined in following our evaluation based and risk focused investment process and I'll show you how that leads to decision making that's contributed to a competitive track record that's included outperformance in the most difficult times. And I really feel that our approach is well suited to delivering for your clients now, looking forwards in a tumultuous and changing global environment. And this slide gives us some background to it. As I always say to the team over any year or five years, we can absolutely put together a picture of lots of things that feel they matter. And normally a year later, many of them were less relevant than it seemed at the time. Well, I think it's been different over the period that these funds have been launched and now looking forwards is that there really are almost, well, they are generational shifts. Going on from the first pandemic in, at least Western Europe and US, of significance over a century. Brexit, an unprecedented departure from the European Union. Inflation reaching 40 year highs, of course. One of the steepest interest rates rising cycles for generations and now US tariff levels at rates we haven't seen for almost 100 years. These aren't just kind of small adjustments, they're very significant shocks and or reconfigurations to the kind of global political and economic landscape, political change at the top there. The UK has seen 4 prime ministers and five chancellors over the five years that the funds have been running, so hopefully it will become more stable, but it doesn't feel it at the moment. So that's the backdrop to it, which is we do think that kind of these really almost generational shifts in a lot of the elements on screen there have created a, yeah, a time that’s challenging. And on the forward-looking basis, the ongoing tumultuous environment that we think any multi asset solutions that you select your clients will have to navigate and we believe that our approach is quite well suited to doing that. And this in a nutshell I suppose is the way we think about investing.

We are truly longer term investors. We're looking to effectively put the kind of probabilities of risk and return in our investors favour tilting portfolios, they're balanced portfolio, but tilt them towards assets that we think are meaningfully cheap in their long-term value and tilting away from those that look meaningfully more expensive in their long-term value and we do believe that assets absolutely go through cycles of being expensive and cheap, linked broadly to the concepts of cycles of greed and fear in the market. Maybe where we've been in one of their kind of more greed seeking behaviours over recent years. And within that, our behaviours are clear and unchanging. We look to be disciplined and consistent in our valuation analysis to place that in the market context and to be patient when we think valuation opportunities do emerge. In in allowing them to play out for the benefits of our investors in the portfolio, we think that approach ultimately it can support very, very attractive long-term investor outcomes. On this slide and I appreciate this is a slightly busy slide, but this is how the different bits of the puzzle come together to deliver the outcomes that we deliver. Niall touched on the scale of our business earlier that allows us to resource the team well. That means there's a lot of analytical firepower to support our asset allocation decision research and decision making on the left and the fund selection decisions on the right for these funds, that's primarily selecting the track of funds to meet the asset allocation input and then kind of across that is the risk of portfolio construction element, which is absolutely crucial in. Making sure we deliver outcomes that are in keeping with the risk profiles for each of the funds within the range. And that's something on an ongoing basis, both daily and monthly, we monitor very closely to make sure there aren't any shifts in correlations or expected risks in the portfolio. And every time we propose and then make changes to the portfolio, it's rooted in the risk analysis and the decision for the portfolio. It's really important to us that the funds are simple and transparent and they do what they say on the tin and the combination of our research process and the risk management implementing it are a key part of making sure we're comfortable delivering that. To bring it a little bit to life, and I'll do that in two stages, this chart, I know there's lots of reds and greens on here, but this shows how our convictions for the main parts of the market have evolved over time from the launch all the way through to the end of July. And the key point, the reason why I put this up here is you see long blocks of similar colour and that's what you should expect from our process. We're looking for kind of strategic medium term valuation opportunities. I've said we're longer term investors, we're not looking to undertake huge amounts of short term trading, we think that's an easy way for longer term managers to detract value and so you should expect to see consistency. There's a new data point here, every month you should expect to see consistency from one month to the next in our in our asset allocation views, but over time as valuations and market conditions adjust, you should expect us to see us gradually kind of evolving that, being true to the active asset allocation philosophy that we espouse. And so over time you see some of those reds becoming green, others being consistent over time. And that's absolutely the way you should expect to see us behave – consistent with our long term valuation oriented process. If I then cut that a slightly different way, and I won't belabor this point too much, but again helps show how things come together. This shows the bond positioning within bonds for the Risk-Managed 4 fund since we launched it. And above the line is where we're overweight. So you can see at the start it launched with an overweight in that purple, the overseas corporate bonds. But down underneath the zero line is underweight positions to reach a different bond asset classes so you can see. Ultimately there was quite a large underweight in bonds at the start there, that big green underweight is gilts and that evolved over time to first a more flattish, a flattish relative position then building a preference for gilts more recently over overseas government bonds. So that just shows even within the kind of consistent kind of framework of the actual convictions, you can see that's absolutely true as well in the actual positions.

Then in more detail, starting off with that underway position, I thought it makes sense to bring the process to life a little bit in terms of how do we take that valuation philosophy, kind of how do we, what analysis do we undertake, how does that lead us to make kind of medium term investment decisions? So I put together a couple of examples that I'll go through quickly to show you the process in action. And the first one here is thinking about our approach to that bond positioning in the run up to, as we all remember, the challenging market conditions of 2020. It's a good example of how our analysis leads to portfolio positions. I’ll start here. This is a screenshot of a slide we showed our investors back in the first half of 2021. I think it's much better to show what we said rather than to claim what we said. Especially that long ago and what you see here is on the left the colours that the valuation backdrop, we're rooted in the evaluation analysis and that shows lots of fives which basically we're saying versus history, bond yields looked expensive. That's a starting point, which to us indicates a potential risk in the asset class. Then on there is the comments where we were capturing the fact that we felt that inflation risks were rising and that the bond yields may not be capturing the additional valuation risk, but the inflation risk that was coming alongside that. This is an example, some of the slides against charts again I showed at the time on the left hand side. I think we probably all remember the kind of supply chain pressures post COVID as demand suddenly opened up much quicker than supply could come back online. That for us was indicative of a inflation risk. At the same time, as there was considerable support for economies from interest rates and government spending, so kind of strong stimulus to demand at the same time as supply was constrained, that felt to us as a kind of a perfect storm in terms of inflation risk. And yet on the side you see back then the inflation expectation had barely budged from the relatively low levels that had persisted throughout the kind of the second-half of the post financial crisis period. And the quote at the bottom kind of pulled that together really, it seems laughable now given what we went through, ‘FED signals no rate rises until at least 2024’. But despite growth uptake, our case was we felt the risks were the other side in an expensive asset class, hence the large underweight that you saw in the charts earlier. Of course, we all know what subsequently happened. Inflation took off, bond yields rose. It was a very difficult period for investors across all the mainstream asset classes. But we can see here that the light blue line there shows that compared to the benchmark, which is the red line and most of the peers. The funds held up, this is the Risk-Managed 4 fund, better as a result of our kind of conservative approach towards the bonds, the kind of valuation analysis leading this to the strategy leading to a period of outperformance in what were admittedly still difficult times. For investors. That's the same against just the benchmark. And then more recently because I don't want to just be talking about the kind of the history back in 2020 or be it that was an important, a significant shock for markets and important to talk about the fans navigating that well. More recently I wanted to talk a little bit more about corporate bonds. This chart here shows the credit spreads since 2010.

So effectively this is the credit spread, the extra yield you get for investing in corporate bonds over government bonds. And you can see that line down at the end that had got to a very low level, very low levels by the second quarter last year, put that 95th percentile over that 14 year window, pretty much at around a low since the financial crisis. So from a valuation point of view that's a kind of, again, we see that's a risk. It's an inauspicious starting point if we're hoping for attractive long term returns from the asset class. On the left here then in green is the same chart spreads again, but for short dated investment grade corporate bonds. And again you can see the same pattern tightening towards lower levels, but not as low, 82nd percentile rather than 95th percentile still theoretically a little bit more room to tighten, not certainly a hugely cheap asset class, but one where the valuation headwinds looked a little bit less extreme than in the kind of the full maturity corporate bond funds.

Now it's particularly interesting to us because short dated investment grade credit, because it's short dated, tends to be less sensitive from a return point of view to spread widening as well. So a little bit less extreme spread levels in a corporate bond asset that should be less sensitive to any spread widening looked at an attractive, relatively defensive way to invest in corporate bonds and in a way that didn't give up any yield. You can see unusually that purple line had got ahead of the green line. The yield on the short data index was actually higher than the main index. And so we thought it was a great combination of a relatively kind of resilient way to invest in corporate bonds without giving up yield to help build resilience into the portfolio, and that shows the way we think about risk alongside return and what you can see since then, the short dated index that we invested, the green line, considerably and kind of progressively outperforming the purple line the mainstream credit index that we kind of partially shifted out of to implement this view in portfolios. So 2 examples really of the type of analysis we do thinking about kind of risks, valuations and how best to build portfolios that we think can be appropriate for the risk profiles and resilient for our investors.

Please do use the questions to submit questions as you go. So the key takeaways here, we're really clear in how we think we can generate longer term returns for your clients. We're really disciplined in following the process. We think that's helped the fund navigate the biggest sell-offs over the over the recent years. And we do believe our valuation focused approach is differentiated compared to many other multi asset solutions out there. In our view that can make it a complimentary holding, but actually more than that, we think the way we do things, it's really well suited to the environment of change that we've entered and that the sharp underperformance in US equities in the first part of this year may have highlighted the risk of holding investments that worked over the past 10 years or so that may come with more risk on a forward-looking basis. So I'll pass on to Dan now to explore some of these forward-looking thoughts in a little bit more detail.

(23:55) So I'm going to start with a slide that's kind of similar to the one that Anthony showed at the beginning. However, whereas he was looking back over the last five years, this slide looks ahead to the future. The themes on this slide are pretty long term; ageing population, the reconfigurisation of globalisation. But despite being long term, these things are starting to impact portfolio today. For example, while Trump has several years left in his term, compensations around the midterms, his health, potential successor, those will begin to emerge much, much sooner than you might expect. Similarly, ageing population, it's a gradual process. We're already seeing the effects of that on bond markets, investors are starting to process the implications for deficits and government spending as that population ages, particularly in the Western world. In practice, when we deliver this presentation five years from now, our ten-year presentation, you're all invited, there's likely to be something completely different on this slide, something that none of us have predicted. So if you go back to the original slide that Ant showed, the most obvious example of that is the pandemic. People did not anticipate the pandemic and yet the funds have had to sort of trade through that period and weather that period. So whilst we work hard to anticipate the future and position the funds accordingly, the real key for us is building portfolios that are robust to a wide range of possible futures. Yeah, to use a sort of cheesy phrase, the only constant is change. And so, when we revisit this slide in a decade, it won't look as we expected, but we believe we built an investment process that would have risen to the challenge. What does that mean in practice? How does a portfolio meet with the unknown? It means we stick to the principles on the philosophy slide. So we maintain a disciplined approach. We focus on our valuation as a start point. We don't overpay for assets and it means we're investing across a diverse array of our markets and assets depending on where you are in the risk spectrum. Next slide please.

So with sort of diversification in our mind, let's look at the current state of equity markets. When you're building your portfolio, but in particular a multi-asset portfolio, a significant portion of your outcome is a result of your start point. So our team may choose to be underweight the US or overweight the UK or overweight gilts, but we're doing all of that relative to an initial allocation. Different people might refer to that start point as an index or a comparator or in some cases your strategic asset allocation, whatever you call it, that starting point has a really significant bearing on the outcome that your investors receive.

So let's say, you say I want to build a multi asset portfolio that is market cap weighted. So the chart on the left here would be your starting point for your equities. The enormous great piece is North America and the next two largest areas, the purple and the blue are emerging markets in Europe. Had we broken down those regions, you'd actually see that the difference is more stark, there's lots of countries in Europe, there's lots of countries in emerging markets. So the US would be a very large chunk of this. In addition, this chart is the All Countries World Index, so that includes lots of positions from smaller countries. In practice, those countries are less liquid and lots of funds don't hold those and so actually that 67% can wind up being as big as sort of 72% if you take out those smaller nations from the portfolio.

If we add further context to that, if the next decade looks like the last decade, the US would continue to grow its portion of this pie and we're near 8% of the pie by the end of the decade. hand chart is looking at it a different way. So here we've got the GDP weighted all countries world. This is a real index. It's daily. There aren't many products based upon it, but it's a full index. Once your GDP, that North American chunk has dropped down to 33%. Meanwhile, emerging markets, which in this case includes China and India, has jumped to nearly 36%. So by investing in the ACWI and it's current weights, we're roughly taking the GDP weight of the US and doubling it. Next slide please.

So now let's look at the US index by itself. This is a chart showing the percentage of the S&P 500. That's represented by two things. The green line is the percentage that's represented by the top ten companies, and the pink line is the percentage that's represented by technology companies within the S&P. If we look at the big spike in the 2000s, that of course was the dotcom bubble. So what can we see in this chart? First thing we can see is that in 1995 technology was just under 10% of the index. Now it's up near 30% in part driven by the Magnificent 7. Top ten stocks started life a bit higher, sort of nearer 17% of the index. That in itself is now approaching 37%. So what we can see if we take the two charts from the previous slide and this slide together is that not only is the US has come to dominate global markets but an ever increasingly small number of companies has come to dominate the US within the US market. So if you buy a global index thinking that you're acquiring a high degree of diversification, that might no longer be the case. We think investors have lost a bit of perspective on this and a simple way to think about that is to look at the pink line again. So it's widely accepted that the pink line, the jump in 2000 was a definite and obvious bubble. Now we're back at those levels if you look at the hand side of the chart, but many investors would consider the notion that this is a bubble preposterous. Next slide please.

So let's look at it from a slightly different angle. These are the anticipated returns from a long term CMA, so capital market assumption. For those that don't know what a CMA is, they're long term return assumptions for different equity markets that are produced to support long term decision making for strategic portfolio management. So it's pension funds, Risk-Managed funds, they're often the contributors that help determine that start point. They're usually based on a combination of historical return and the historical relationship between markets as well as kind of the historical level of premium between markets - so the difference between equities and bonds historically. If we take this at face value, there are a reasonable set of assumptions for the long term expected returns of equity markets that are anchored to their history. So these are data-driven. They don't include significant sort of portions of opinion and people's kind of macro economic sentiment. We didn't produce this one. This data comes from AOM, which is a survey provided to the funds. But the key take away here is that over the long term, equity markets are not anticipated to differentiate from each other tremendous amounts. Yes, there's some difference, the US is slightly higher than the UK here, but the US is not the tallest bar on the charts, nor is it significantly ahead of the others. So there's nothing here in these long term return assumptions that suggests one would need to put 70% of their assets into a single market in order to generate returns for their clients. Next slide, please.

So let's finish by sort of putting that long-term perspective back into the context of today. On the left here we have a chart of US CAPE. So CAPE is the cyclically adjusted price earnings ratio, which shows the ratio of price to the kind of average of the last 10 years earnings. The reason we do that is averaging the earnings helps smooth out some of the economic noise, so it creates a slightly fairer comparison when you're looking further into the past. Our team uses quite a few different valuation measures to look at valuation in different ways, but from a purely mathematical stance, the CAPE has a very strong relationship with past returns. So this is what we're choosing to show today, but if we picked a different one, it would be a very similar outcome and a very similar chart that we'd be showing on the left hand side here. So if we focus just on that left hand chart, higher indicates that equities are expensive and therefore of course lower indicates that equities are relatively cheap. And if you follow the line along, we kind of get what we might anticipate what given what we now know about the past. So equities were expensive during the dotcom bubble. Then they were relatively cheap following the financial crisis of ‘08. And then if you turn to the hand side of the chart today, you see that those numbers are back at levels, not dissimilar to the ones we saw we saw in the dotcom bubble.

So on the previous slide, we saw the concentration within the index is at a similar level to that bubble. And here we're now saying the price you're paying for that concentration is also potentially at a similar level to that time. Turn to the hand chart and this shows the relationship between CAPE and the next 10 years return for the markets. So capes on the bottom here, returns on the left hand side. So in the past if you invested when CAPE was around 10, so we're looking at the top left of the chart here. You would have received a double digit equity performance for the next 10 years, so something in the region of 15% for the best dots on the chart here. Whereas if you invested when CAPE was near a 35, so the bottom hand side of the chart, history shows that you essentially made no money for the next 10 years. The current context, the current CAPE as of today is around about 37. So if we just take a breath and sort of think about that for a minute, the US is the place in our long term valuation framework that is the most expensive. It's simultaneously the largest portion of a multi asset portfolio if you choose to build it entirely based on market cap weights. Are we saying we should blindly follow this chart and our expectations are that there'll be no return for the US the next decade? Absolutely not. That's not our process. Everything we do is about valuations sat in the context of both their own history, the present day, and also macro environments. But are we saying that based on this data, this is your starting point, blindly expecting the US to produce the returns for the next decade that it did for the previous one is naive. Then absolutely yes we are, the valuation starting point does not support a significant return outcome here.

Regardless of whether you view the chart as being perfectly accurate or not. If we then sort of look at, OK, where are we starting from a macroeconomic standpoint? Yeah, we think the market has become overexcited about the US, even if you take this valuation assumption and sit it into a relatively positive macroeconomic backdrop, it's not reasonable to try and generate that long-term diversified return for your clients. By having 67% of your portfolio in this asset, when market valuations are where they are economically, we also face a great deal of change. We've seen the emergence of tariffs. We've seen Trump starting to interfere in the Federal Reserve. Inflation remains stubbornly above the 2%. We've seen some weakness in the labour market data. The US economy is by no means on the rocks, but there are some cracks showing and now you're paying an all time premium to be exposed to those cracks. So it will come as no surprise to people listening that we do not think that premium is currently worth it. Next slide please.

Last one from me and I'm conscious of time. I just want to put on the screen our current convictions. I'm not going to dwell on these, but we're happy to take any questions that you might have on them. Just give it one second to allow people to take them in and then I'll pass back to Niall to talk through the performance outcomes for the fund and we'll jump back in for any Q&A that you have.

(35:30) Perfect. Thanks for that, Dan. Happy to jump on the next slide. So I'm going to try and catch up some time here. I know Dan and Anthony were both fascinating there and I've got lots of questions lined up for them. So do as I talk through the performance numbers, do mull over what they've said and get the questions in guys. I've seen quite a few come in already, so thanks for the engagement so far to start with. I'm quickly going to fly through this one just to show that the performance that the fund ranges, the fund range sorry has achieved over the last five years showing that's sequential ordering as you go up the risk range shown as volatility on the horizontal axis that performance increases and this is a general shape of longer term performance that you would expect from a multi asset range. As you take more risk over the longer term, you are commensurately awarded rewarded for doing so. Happy now that the Risk-Managed 1 and 2 at the lower end of the spectrum which were challenged by the rapid and sudden interest rate changes, that Ant has gone through, in 2022, we're now back in positive territory there. So the whole of the range has delivered positive returns over the five year holding period, which is great and particularly proud of the outcomes offered by the sort of middle and upper other end of the risk spectrum where most of our customers are, particularly pulling out Risk-Managed 4, which I think is at about 7.3% return per annum over a five-year period, which I think we can all agree represents a really strong number. If we could jump on to the next one, please.

I wanted to put this slide in because intuitively you might go, hang on, you're just showing that the funds have performed in line with their benchmarks across the range, quite generally some a fraction above and some a fraction below. But I thought this was important in the context of. Some of the positioning that Ant has taken you through and some of that process, because I think intuitively to me, when you hear somebody's been significantly underweight U.S. equities relative to the backdrop we've seen, you immediately intuitively think that, oh, take a step back. Oh, they must have performed quite poorly against their benchmarks. I can understand why. Now you might have done that with that evaluation focus, but the look through to against benchmark performance that might have been a bit of a challenge. Actually this is a credit to the team in their process that despite some of that conviction and positioning, they have been able to deliver returns in line with those benchmarks. And we'll touch on it more in a second. It will lead into the next point I'll try and make. But where some of the points Dan was making about those benchmarks and longer-term positions becoming more, more concentrated and less diverse than they once were actually the valuation focus of the team in the day-to-day management, that value overlay to a strategic long term position that is becoming increasingly more growthy has produced great downside protection for the fund range in the context of delivering these numbers, which is fantastic.

But before I get into that, I'm going to touch on, we appreciate they are our benchmarks in selecting this fund range. What matters more isn't sometimes the funds that you could have selected in their place. Now this is what we call a bit of a heat map for us, there's no heat colours but you want to be at the top and in so far as it's possible. But this looks at different performance periods, so starting at three months and working all the way up to five years. How I'd normally look at this table is saying we want to be talking about the three and five year columns on the and explaining the 1st 3 columns on the left. So it ranks performance in comparison to sort of what we view as the competitor fund ranges for the Risk-Managed range by, and it does that by looking at our Dynamic Planner ratings for Risk-Managed 4 and looking at those competitor strategies that are in that same Dynamic Planner bucket as Risk-Managed 4. So try to be quite transparent about that. We're not cherry picking competitors here and shows how over whatever period we cut it that the fund range or Risk-Managed for in this instance is performing extremely strongly and is at the top of the table over three years and is second over five years with Royal London's GMAP growth taking the top spot there. One quick thing to say about that, I think one of Ant's earlier charts showed you that the Royal London GMAP growth strategy had a nominal 2022 and it and it showed you the differentiate performance they achieved over that period. But since that point you'll see that they're at the bottom of the table over one in three years. So actually we our positioning relative to that solution in delivering consistent customer outcomes that are at the top of the table comparison to competitors.

Now we have we produced this on a monthly basis and we have this information across the risk spectrum that we can share. So reach out to your Aegon contact as usual and we're able to share this on a regular basis if this is something that you're interested in seeing more regularly. So I'll jump back to my last point about some of the downside characteristics now and in the next slide, if that's possible, so that this chart shows the maximum drawdown of the funds in comparison to strategy in comparison to the competitors over the last five years. Unsurprisingly, this happened in most of these drawdowns happened in 2022 at the height of the mini budget turmoil. I don't want to get into that necessarily, but just to highlight that. The Risk-Managedd funds with the overlay of and Dan's. Active processes have really achieved really strong resilience through that period, given what you might expect of the underlying passive componentry in this and the simple listed nature of the fund range., it's sometimes easier to look at some of these competitors and they might spend more money and more cost on some fancier diversifiers, but really we really the resilience that our fund range has shown over this period, utilising that slightly simpler range of underlying building blocks with the addition of the team's active processes. So in comparison to the benchmarks detail that we showed you a couple of slides ago, the fund, I think the benchmark went down about 12% relative to Risk-Managed 4. So you can see the team’s overlaid processes mean that only about 80% of that maximum drawdown is experienced by the fund and that has connotations and different use cases for customers.

Primarily that gets me to thinking about how the funds can be used in to and through retirement in a drawdown capacity to really support the resilience and sustainability. An income stream through retirement. And I think that was all from me. So hopefully that's been a bit of a whistle stop tour on performance. And all that remains to be said is that there is a range of materials and suite of information as you'd expect about the fund range on online. So if you're want to find out a little bit more, please click on the link you see on the screen now and the fund range has every all the materials that you would expect in supporting a fund range that we are truly committed to here at Aegon and some really interesting material and tools that are available there, and with that I shall we will pop Dan and Anthony back up and we shall get to questions now.

Hit my Q&A button and see what's come in. And have to scan them quickly to make sure I can read them out. But I'll go with the first one. No. OK, that's an interesting one. And, listen, before I get the question, I think we are aware that we're competing with eyeballs with the Labour Party conference today. So hopefully we're a nice counterpoint to that. But first question is about UK political uncertainty and Dan and really in this sort of current backdrop, heading into the November budget. But overweight UK? What are you thinking about that?

(44:44) Yeah, I'll take that one if that's all then it's a good question. It's a really good question. We know there is clearly political uncertainty questions about the fiscal kind of government debt trajectory and that has played through to gilt yields that look increasingly quite high compared to government bond yields in other countries, particularly the US and core eurozone. And we actually think this is creating a really, really attractive longer term opportunity for investors, for investors, gilt yields now are getting towards a 4.7 towards 5%. The long end of the curve is up over 5.5% there. So in their own they are really relatively high yields and in the context of an economy that is a little bit vulnerable, partly we can see that through the continuing softness in the labour market rising unemployment that we've seen over the past 12 to 18 months. Partly if we think about the kind of fiscal consolidation kind of moderate retrenchment in government spending that Rachel Reeves has committed to over the next one to two years, which will act as a further drag in the economy, we really do think that the Bank of England will have to ultimately cut rates faster than investors currently expect and we and we think gilt yields are higher than they deserve to be both in absolute terms and compared to other markets the US. So yes, we accept the political challenges are there now, but we think that ultimately economic constraints should win out over political constraints, especially given the size of the Labour Party's majority. And we think those economic constraints will be very supportive for gilts. So, we really them as part of the portfolio. They they really can provide in certain circumstances a defensive offset to some of the kind of valuation risks that we see elsewhere and we think that we're being kind of paid handsomely in yield for patience in holding those offsets.

UK equities I suppose are the other side of the UK debate and there's another question here, what's your asset allocation? Looking forward between US, UK and Europe is a good question. Dan’s spoken at great length about the US, that the funds are underweight the US. We think that the valuations and the kind of high ownership create clear medium to term longer term risks which may well be catalysed by the policy change that we're seeing now, UK and Europe we prefer, I wouldn't say they look particularly cheap, but they look less expensive and we think that they have more or at least reasonable policy drivers to support them. So we do prefer particularly UK and European equities to US equities. We think that they have a better outlook.

(48:08) Perfect. That was great. And now I'm going to in an effort for a warts and all Q&A - I want to, in this hopefully give some confidence that we're not cherry-picking questions. One of the questions is the charts are very old. Why are they relevant now? And OK, I'll have a first stab of that and then maybe pass on to you guys. Yes, we look back within the five year period that we framed the webinar for. So that's why some of the charts might be earlier on in that period, but that's where we think they’re really representative of the guy's process and talk you through interesting case studies that remain as relevant today as they were then because the process hasn't changed. And you don't want a process that changes with the tides and tries to keep up with whatever current market fad there is and the fact that process that applied to the 2022 position is as relevant today as it was then is it is a good story. So that's why that's that would be my take on it. Dan, anything to add to that?

(49:19) No, I'd agree. I think it's about putting the, the funds in there, the historical context, the valuation charts that I showed were up to date for the last week. So I'll defend those. But I think it's very hard to have up-to-date charts when we're talking about something that happened in 2022.

Yeah. And we do and it's important to say this we do other webinars as a team, we produce a lot of other materials. This is we are sort of active in producing materials for clients that cover the current market context and so there are things out there we're happy to talk about.

(49:54) OK, great. No fair challenge though as well. So thanks for the questions and that hopefully gives you confidence that even if it's a maybe a little bit more contentious than you might think, please get them and we will do our best to cover them. So now and just extending this sort of rationale for some of the UK position. I've got another question in about the rationale between the for the current overweight in Japan and I know that's regularly been discussed and reviewed by the team, but do you want to take that one?

(50:29) Yeah, happy to speak that. I suppose there's three bits here that parts here that are relevant that show the way we think about the portfolio together. The first is actually Japan is relatively uncorrelated to other global equity markets and more so than most regions. So that makes it quite interesting holding in multi asset portfolio generally and it means that when we have a positive view we're certainly inclined to hold a higher weighting. So that's the one it's interesting from portfolio construction point of view as a region. Secondly, one of the reasons for the high for the lower correlation is the Yen carves a distinct path and typically a risky path as a currency. We we get Yen exposure alongside Japanese equities unless we hedge it, which we haven't the now on all standard measures of currency valuation, the Yen looks very cheap.

So the valuation starting point is that having some Yen in the portfolio is quite attractive because it's typically a defensive resilient asset which currently looks very cheap and there are reasons to point to diverging central bank activity, the US. Federal Reserve has just started cutting rates again. The Bank of Japan is still on a very gradual rate hiking cycle that would make you think that kind of there are reasons to think that cheapness may be an opportunity in the end.

So I know I spoke a lot about without talking about the Japanese equity itself, but from a portfolio point of view in terms of the way you put portfolio together and think about building what we think is cheap resilience, they're useful and then in their own, because this is just as important, Japanese equities don't look as expensive to us in our longer term measures as some of the other equity markets and we don't think that they've been fully rewarded for the structural changes that have been running now for over 10 years, 10 to 15 years since Abenomics came in around 2011, there's been a real sustained and more than sustained kind of picking up drive for a more shareholder friendly investment environment in Japan. We could see that coming through in dividends in earnings and we don't think that the market has responded fully to that long term change. And so we think that long term story is still very relevant in the market that doesn't look as expensive as others and where it is also attractive from a broader portfolio context.

(53:09) Just a quick follow up from me on that one and Dan might want to step in as well. the valuation centricity you highlighted around some of the key things in America as well you bringing in the yen into play there as protection, how are you viewing the changing role of dollar exposure and historically some of the tail risk event protection that the dollars offer, is that changed and how is that playing into your thinking?

(53:39), I'll happily take that. We have for some time been careful about treating the US dollar too much as a kind of risk off currency, it has been. We're all used to it being the currency that does well when risks flare and it may very well be again, but we think that the probability that or at least the kind of strength billion dollar in difficult periods. So when we're making this point for two or three years is more at risk simply because we've just gone through a cycle where lots of capital has gone into the US. You can see that from Dan's charts on the equity market. You can see that for most markets, the US has been the exceptional investment destination for most of the past 10 to 15 years and we question going forwards, whether it would seem as exceptional as it has done so far, that sucked in all the capital. Typically you find in proper market downturns, capital repatriates and kind of moves away from the risk areas that may be struggling to perform. And so we think in that kind of in that kind of environment, the kind of correlations that everyone's used to the dollar may come under a little bit of threat. So we're not overly negative on the dollar. We're not sitting saying it's a it's a terrible currency, but it doesn't look particularly attractively valued. And we do think some of those correlations may change just because of the weight of money that's moved in really big picture terms. What's worked over a cycle tends not to work when that cycle ends and now that's the dollar. So, so looking forwards we are being careful to make sure that when we have things including the portfolio because we think they can be resilient that we have conviction that it can perform that role and that's I suppose the answer to the question.

(55:23) Yeah. And I think that sounds a good place to leave it conscious that we could go on for quite a bit of time there. And that point on resilience is born through in the portfolios and we're delighted with how they have performed and hopefully we've given you the confidence today that we expect the next five years for the funds to go from strength to strength and to continue to show the resilience that they have seen to date. So all that remains for me to do is to thank you for your attendance today. And really it's if there are any questions that you go away in half an hours time that you think, ‘oh, wish I’d asked that, I'd love to their take on X Y or Z’, then, please reach out. We're more than happy to cover anything in additional if it comes up. But thank you all for attending today. We know there's always lots of these things that you could choose to attend and we're delighted that you chose to come to this this morning or whenever you might be watching this if you're catching up on a recording. So thank you for that.

(56:26) Thank you.