Page 19 - NIB Annual Report 12-13 | 13-14

Investment Strategy
The National Insurance Fund has a long-term investment strategy which focuses on the preservation of purchasing power and the long-term growth of capital at an acceptable level of investment return volatility. The National Insurance Board invests in a well diversified and disciplined portfolio of securities in accordance with the established Investment Policy Statement.
During the 2012/2013 financial year, the Board made no amendments to its Investment Policy Statement however reallocations from Cash were made into Alternative Investments and Equities. Market activity supported this rebalancing as investors made a gradual rotation of risk appetite into equities which offered better valuations on bond/ equity yield ratios. Cumulatively, Equities and Alternative Investments accounted for over 50% of the portfolio in both years under review and contributed to the majority of the overall portfolio return.
During the year 2013/2014 financial year, the Board conducted no further rebalancing or policy changes. A revision to the Investment Policy Statement was under consideration during the year, particularly with respect to revising the asset allocation targets given new capital market assumptions. Changes were anticipated to be made to increase exposure to risk assets by increasing the strategic targets for equities, reducing the target for Fixed Income and adding new asset classes such as PrivateEquityandCommodities.
TheFund’sactualassetallocationasat
March 2013 and March 2014 is shown below, compared with the strategic targets as agreed by the Board of Directors in the Investment Policy Statement.
All main asset classes with the exception of Cash closed within their wider strategic bands. The continual inflowofexcesscontributionsintothe Fund and limited domestic investment opportunities has kept Cash above its upper band. A rebalancing exercise would be warranted once revisions to thestrategicassetallocationtargets were made in the Investment Policy Statement.
Asset Class
Strategic Target (%)
Ending Market Value 2014 ($)
Ending Weight 2014 (%)
Ending Market Value 2013 ($)
Cash
3% 35% 40% 3% 10% 9% 100%
$39,205,846
$47,464,107
$83,126,940
$7,918,497
$17,768,521
$195,483,911
20% $28,822,010 17%
24% $48,469,103 28%
43% $70,997,233 41%
4% $6,944,163 4%
9% $17,055,507 10%
0% 0%
$172,288,016
Fixed Income
Equities
Convertibles
Alternative investments
Real Estate & Reits
Investment Performance
The National Insurance Fund delivered returns above its absolute return target of US CPI inflation plus 3% (4.5% in 2012/13 and 4.03% in 2013/14) in both financial years. In 2012/13 the Fund returned 4.91% and in 2013/14 returned 8.00% and continued to grow through excess contributions and investment income.
The global economic recovery persisted over the period in review with fears of a Euro breakup lessening following the commitments by the European Central Bank to preserve the Euro as well as support from the US Federal Reserve through its third round of Quantitative Easing. The Fed’s accommodative monetary policy also spurred mergers and
acquisition activity in 2013 and a culmination of these factors provided a solid underpinning for stock prices. The NIF’s equity portfolio advanced 7.26% (2012/13) and 17.08% (2013/14). The Fixed Income portfolio was supported in 2012/13 by falling interest rates but reversed the gains by end 2013/14 as bond yields rose. The NIF’s underweight in Fixed Income at the end of 2013/14 has been advantageous during this period of rising yields. The Fixed income portfolio returned 2.44% (2012/13) and -1.03% (2013/14).
A number of well-known pension funds are increasing their strategic allocation to include hedge funds. These types of funds invest in long
or short equities, bonds, currencies and commodities. The pension fund investment management industry is increasingly appreciating hedge funds which are known for steady long-term returns with lower volatility. The addition of hedge funds and managed futures into the portfolio has provided a positive return over the two year period with a 2.84% return in 2012/13 and 5.16% in 2013/14.
The Convertibles portfolio is held to diversify risk in the portfolio. With both equity and fixed income like characteristics, convertibles are considered a hybrid security. In 2012/13 Convertibles gave decent upside returns and surged in 2013/14
2013 & 2014 ANNUAL REPORT | 15
Ending Weight 2013 (%)