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March 2015 Update - Review to December 2014

Asset allocation quarterly review

The latest Towers Watson review of the economic assumptions underlying our platform optimised portfolios has resulted in no asset allocation changes this quarter. This review ran to the end of Q4.

Platform asset allocations

With few exceptions, global markets and most major investment assets achieved positive returns in the fourth quarter of 2014.  Markets reacted positively to falling oil prices, which created expectations of lower inflation, a postponement of rate rises and expectations that lower energy costs would be a further stimulus to growth. As a result global equities rose on sustained economic activity, major fixed interest assets were boosted by the prospect of low inflation and interest rates, whilst property maintained support from investors seeking yield.

Following the substantial market gains for the majority of investment assets over the fourth quarter of 2014, Towers Watson’s projected returns have been reduced for all major asset classes. Despite reductions to projections for all main asset returns and alterations to expected volatilities, there were very minimal suggested changes to current asset allocations with the exception of cash deposit and UK fixed interest allocations.

Over the last year there has been a steady reduction in fixed interest yields and to a lesser extent, a reduction in long-term projected cash yields. This has led to a gradual, but sustained movement away from UK fixed interest holdings in favour of increased cash holdings across the majority of the risk profiles.

Taking these fixed interest and cash projections in isolation, the model suggests a continuance in this trend. However, when consideration is given to the low near-term available rates for cash, the cost to clients of switching and, equally, recognising the unusual fluctuations of the fixed interest markets since the beginning of 2015, the changes are considered insufficiently significant to warrant their implementation. This means asset allocations this quarter will remain unchanged.

View the current platform allocations (as at 18 March 2015).

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