Every year, we review the long-term Strategic Asset Allocations (SAA) of our EMPOWER range of multi asset funds. Following this year’s review, changes have been implemented across the EMPOWER High Growth, Growth, Cautious Growth, Flexible ARF and Stability Funds.

These changes involve three key investment areas: 

1. Bonds: We enhanced diversification of the bond allocations by investing across Long Term Government Bonds, Global Aggregate Bonds (a mix of government and corporate bonds) and Global High Yield Bonds. The increase in bond allocations will be mainly offset by a reduction in the allocation to Property, as well as European Corporate Bonds.
2. Equities: In the EMPOWER High Growth Fund, we reduced the allocations to Emerging Market Equities, Low Volatility Equities and Dynamic Share to Cash Equities (risk managed equity strategy). The reductions will be offset by an increase in the allocation to Developed Market Equities.The overall allocation to equities will remain unchanged.
3. Infrastructure: We are expanding our infrastructure allocation to also include unlisted infrastructure. This new allocation will be managed by a third party, IFM Investors, a global asset manager with considerable experience and expertise in infrastructure investing.

The return and risk profile of all multi asset funds will remain the same. The majority of these changes were implemented in June.

Why did we make these changes?

Throughout 2022 and 2023, interest rates were increased significantly to combat inflation. The rise in interest rates has meant bond yields are offering much higher returns than in previous years. With yields remaining attractive this year, it provides an opportunity to further enhance diversification within the existing bond allocation. Additionally, as inflation has receded, we expect bonds to play a more traditional, diversifying role in funds going forward, one where the asset class can provide some support in times of economic weakness, as it has demonstrated historically. 

We believe that pension members invested in the highest risk, EMPOWER High Growth Fund, do not need as much equity risk control in the fund, as they are early-stage savers with long time horizons before reaching retirement, with time to recover from more short-term bouts of volatility and falls in asset prices. We’ve also modestly reduced our exposure to emerging market equities in the fund as the outlook for emerging market economies is more challenging than it has been in previous years. 

Lastly, we have expanded our infrastructure allocation as we believe the asset class holds attractive characteristics for long-term investors such as stable and predictable long-term cash flows, protection against inflation and provides diversification benefits.