Think you know NEST? How our five-year figures stack up
NEST recently reached its fifth anniversary as an investor. When we first unveiled our investment approach, some said we were too low risk and we would not deliver. Others said our lower risk approach for younger savers flew in the face of investment logic and would not deliver.
So five years on, how have we done? What is our report card saying? We think it’s worth looking at how these assumptions match up to our track record. For some, now could be a good time to consider what they think they know about NEST.
‘NEST is low risk’
Since 2011 we’ve seen and heard a range of misunderstandings about our attitude to risk in devising the right strategy for our members. The most worrying of these have been claims we’re invested entirely in cash!
For the record, NEST’s investment beliefs include:
- Taking investment risk is usually rewarded in the long term.
- Diversification is the key tool for managing risk.
- Risk-based asset allocation is the biggest driver of long-term performance.
Our in-house team includes an economist, financial modellers, asset allocation and risk management specialists, plus responsible investment experts. It’s our collective job to ensure that, while our approach for the NEST Retirement Date Funds is not low risk, we’re not taking undue risk to make members money.
Over the years we’ve been growing the range and means by which to invest in a variety of diverse global assets. Today these include stand-alone mandates for: UK direct and global listed real estate, emerging market debt and emerging market equities. We’ll continue to add to these in order to refine the way we deliver on our investment beliefs so as to grow members’ pots.
‘NEST’s foundation phase doesn’t make sense’
For years the investment orthodoxy has been that when savers are far away from retirement, they ought to be taking the highest level of investment risk. This may have been appropriate for traditional pension savers. However, for the new generations introduced to saving by auto enrolment, it was right to consider their specific needs.
During our research, younger savers told us that they would react very negatively to falls in the value of their savings. Some said they may even stop saving altogether. For this reason, members who join in their early 20s will typically spend up to five years in the Foundation phase. In this phase we concentrate on steadily growing the balance without exposing them to dramatic volatility.
In some quarters NEST was criticised for this approach. Five years on, we hope our track record and the way other schemes have evolved instils greater confidence.
‘NEST won’t deliver’
In July 2016 not only did we hit £1bn assets under management (AUM), for the first time. We were also able to populate the ‘five year performance’ columns on our fund information charts.
Our performance up to our five-year investing anniversary at the end of July 2016 is as follows:
- For a representative fund in the growth phase – NEST 2040 Retirement Fund: 5 year annualised total returns after deducting the annual management charge is 10.1per cent. This compares to benchmark return (CPI plus 3 per cent) of 4.6 per cent.
- For a representative fund that’s been going through the foundation phase – NEST 2057 Retirement Fund: 5 year annualised total returns after deducting the annual management charge is 8.6 per cent. This compares to benchmark return (CPI) of 1.5 per cent.
You can read the very latest asset allocation, AUM and performance figures on the Fund factsheets section at nestpensions.org.uk
Mark Fawcett, chief investment officer, NEST
