Investment changes and new opportunities

As we all adjust to the ‘new normal’ in the wake of the COVID-19 pandemic, we want to keep you up to date about how we’re responding to the challenging financial market conditions, and how we’re developing our investment strategy.

In a change to our investment strategy, we’ll be trading out of tobacco manufacturing, thermal coal mining and more. Simon Pilcher, Chief Executive of USS Investment Management, explains the reason for trading out of tobacco in the video below.

In response to COVID-19, the markets continue to be disrupted by the effects that the pandemic has had on businesses and whole economies around the world – not since the credit crunch of 2008 and the subsequent recession have markets experienced such a downturn.

However, we continue to seek opportunities where they present themselves, such as optimising fixed income assets – trading out of those that have performed best in order to buy other bonds that we think will perform better over the medium term.

So, the team is continuing to adapt, innovate and develop our investment strategy.

FAQs

How has USS adjusted/responded to the financial market downturn?

As a long-term investor, we plan to look through sharp shocks in the economy, however difficult they may be. As an in-house financial manager, USS Investment Management works solely to achieve the goals of USS.

In light of this, in the final months of 2019 the team had already started to review the portfolio, particularly in terms of building up the allocation to fixed income, which tends to offer steadier returns than some other assets. When the effects of COVID-19 started to hit, therefore, the portfolio was already better-positioned and since then, the team has been proactive in managing the needs of USS - including maintaining strong liquidity and repositioning the portfolio to take advantage of those assets that performed particularly strongly.

Can I see how my investments have been impacted?

If you have Investment Builder savings (the defined contribution part of the scheme), you can log onto My USS and review your investments. You can also find fund factsheets, which outline the performance of each of the funds available in the Investment Builder. The pension you’ve built up in the Retirement Income Builder (the defined benefit part of the scheme) is secure and protected by law.

How do I move my Investment Builder investments?

If you have Investment Builder savings, you can make investment choices by logging into My USS. Before making or refraining from making any decisions on your investments, we recommend you speak to an independent financial adviser. You can find a financial adviser through the Money Advice Service’s directory at: https://directory.moneyadviceservice.org.uk/en. The Money Advice Service is an impartial body set up by the government. You may be charged a fee for any advice you receive.

Which markets/sectors are USS disinvesting from?

We have decided to disinvest from tobacco manufacturing, thermal coal mining (the mining of coal to be burned to create electricity), specifically where this makes up more than 25% of revenues, cluster munitions (a form of explosive), white phosphorus (a chemical which self-ignites on contact with air) and landmines.

Why was USS investing in these unethical industries in the first place? I’ve not had a choice and
have been funding industries that I fundamentally disagree with.

In a number of these areas USS has not in fact been investing – or not in recent times. USS Investment Management is required to act in the best financial interests of the scheme when making investment decisions, which means it is required to make decisions based on financial factors, over the long-term. It has recently undertaken a review of certain industries and determined that the long-term financial prospects for these industries such as tobacco manufacturing are not good and so USSIM has decided to disinvest from these sectors.

By exiting any of these markets will there be any sort of reduction of returns?

We do not expect this to lead to a reduction of returns over the long term as these decisions have been made on a financial basis and will be kept under review. On the flip side, we think this will help returns slightly over the long term.

Why have you taken this decision now?

It follows a detailed review of the long-term financial factors associated with investing in certain sectors. It found that traditional financial models widely used by the whole of the market to predict the future performance in these sectors, had not considered specific risks such as political and regulatory attitudes, which we think will damage the financial prospects of businesses involved in these sectors in the years to come.

Will you disinvest from other unethical industries, such as petrochemical, oil and industries that
produce high carbon products?

We will continue to think about the long-term financial interests of the scheme and this will impact how we invest going forward. One of the specific areas to which we devote a lot of thought is the impact that climate change might have.

We engage closely with a number of the companies in which we invest and have encouraged many of them to commit to significant change for good in the future. For example, Royal Dutch Shell has made major commitments (including to become carbon-neutral by 2050) following dialogue with us and a small number of other larger investors, as we continue to use our scale and reputation in the market as a force for good.

Important terms

This publication is for general guidance only. For a glossary of our terms please see more information on our important terms page.