Novae reports drop in returns but performance 'remains positive'

Written by Adam Cadle

02/08/2017

Novae Group's return for H1 2017 was £17.3m down from £28.4m in H1 2016.

According to the firm's latest financial report, this was equivalent to a yield on average invested assets of 1.2% (H1 2016: 2.2%) on average investments of £1455.2m (H1 2016: £1294.8m).

Despite the drop in return, the group said "performance in the first half of 2017 has been positive and exceeded plan".

Last year, the majority of the performance in the equivalent period came from government and investment grade bonds, due to large movements in government bond yield curves.

"However, our economic approach meant this return was available to offset an increase in our capital requirement due to a reduction in the effect of discounting, caused by the same yield curve movements", the group added.

"This year yield curves have been more stable and therefore a far greater proportion of the result represents a real economic return, which generates additional capital for the group. Corporate bonds outperformed government bonds strongly in both the UK and US and both our US dollar denominated emerging market debt and UK equity holdings have generated positive returns.

Both periods demonstrate the benefits of our economic driven approach to investment strategy and of our decision to redeploy risk from a short duration position to a more efficient diversified exposure to growth assets, such as equities and emerging market debt. Our investment risk appetite has not changed during 2017. Portfolio risk levels have remained within our risk appetite range and towards the lower end of the range for most of the period. Hence, the strong returns over the period have been generated at the same time as we have consciously maintained a risk position towards the lower end of our risk appetite range, reflecting our cautious approach to the current macro-economic environment."

At 30 June 2017 the average duration across the group’s portfolio was 2.6 years (H1 2016: 2.4 years) which represents a liability-duration matched position.

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