HL Growth Fund Performance Update - Third Quarter of 2024

The HL Growth Fund is our ‘default fund’ for workplace pensions. It’s likely to be where your monthly pension contributions are invested if you haven’t made your own investment decisions.

If you’d like to know more, visit our website.

Remember that investing is for the long term, and your pension is typically invested over many years or even decades. You shouldn’t base your investment decisions on short-term events.

We hope this update helps you understand how the stock markets affect the value of your pension investments.

Quarter review - 1 July to 30 September 2024

With the British Summer in full swing, the third quarter of the year brought sporting spectacles from the Olympic Games in Paris and the Euros football tournament in Germany. It was busy on the political front too. The race for the White House heated up as Kamala Harris officially replaced Joe Biden as the Democratic candidate, the war in Ukraine passed day 900, and our new Chancellor Rachel Reeves laid the groundwork for a “painful” budget to come following the discovery of a “£22bn black hole” in the public finances.

During the period, the HL Growth Fund grew by 2.0%*, contributing to a strong 12-month return of 18.2%*.

To assess the fund’s performance, we benchmark it for comparison purposes against a group of funds with a similar investment mix, represented by the ‘IA Mixed Investment 40-85% Shares Sector’. The sector average delivered a return of 1.7%* over the third quarter and a 1-year return of 13.9%. The HL Growth Fund outperformed its benchmark for the 7th consecutive quarter. Past performance isn’t a guide to the future.

The HL Growth Fund invests into a mix of two asset types: shares and bonds. Shares are higher risk but offer greater potential returns over the long term. Bonds tend to experience less ups and downs, but generally offer lower long-term returns.

Over the third quarter, despite most regions gaining in value, shares made only a modest contribution to the fund’s overall return, and bonds were the driver of growth.

Although a positive return, the Fund’s growth may seem modest against a backdrop of such strong markets. This is explained by currency movements. Sterling strengthened over the latest quarter which dilutes the returns on overseas investments when expressed in sterling terms. Currency markets are notoriously volatile and – over the short term – very unpredictable. For this reason, we accept currency risk on our stock market investments, which are driven mostly by fundamental factors over the long term. This approach helps keep the cost of investing low.

Markets overseas

To diversify, the HL Growth Fund invests globally, including in higher-risk emerging markets and global smaller companies. So how overseas stock markets perform is significant for the fund.

Looking at how each country’s stock market performed in its own currency (e.g. the USA market in dollars, the European markets in euros and the London market in sterling), the global stock market grew by 4.9% over the third quarter. The Chinese stock market was the standout performer, gaining over 22% in domestic currency terms thanks to the announcement of a large package of measures designed to support economic growth by the Chinese central bank.

The market in America also performed strongly (again), growing by 6.1%. The gain was spurred on by a 0.5% interest rate cut, which aimed to improve conditions for businesses and consumers, and therefore give confidence to investors. This was especially welcome after worries earlier in the period that growth could be slowing, and unemployment was moving higher.

Of the major global markets, Japan was the laggard, falling almost 6% in yen terms. The market suffered a volatile period of performance, influenced by factors such as currency swings, political surprises and a rise in interest rates.

Markets in the UK

Closer to home, the UK stock market also performed well, up 2.3%*. Medium-sized companies outperformed their larger counterparts, as investors expressed hope in a more stable outlook on the UK political scene, and a renewed focus on getting the economy growing again.

Bond markets

The HL Growth Fund holds approximately £1 of every £5 you invest in lower risk investments, like bonds.

Bonds work just like loans. But rather than an individual borrowing from their bank, companies and governments issue bonds as a means of borrowing money from investors via the bond markets. Since a single entity (like a government or company) can often have multiple bonds in issue at the same time, the bond market is far larger than the stock market in terms of total value and number of securities available.

As well as considering how attractive the interest payments (known as the “coupon”) are on a bond, investors also weigh the risk of lending their money. Much like with a bank loan, bond issuers with lower credit ratings must offer higher coupons to tempt investors to lend their cash. For this reason, government bonds are generally the safest and lowest yielding, while “high yield bonds” come with greater credit risk but higher potential returns. Investment grade corporate bonds typically sit between the two, balancing credit risk and yield.

Overall, bonds enjoyed strong performance in the third quarter. Bond prices tend to move in the opposite direction of interest rates: they fall when interest rates go up and rise as interest rates fall. As central banks around the world began to cut interest rates during this period, bond markets were well positioned for growth. Investment grade corporate and high yield bonds generated the strongest returns (4.8% in both cases), but government bonds also performed well (4.0% overall).

As bond markets tend to be more stable than stock markets, they can be more prone to currency movements impacting their returns. Within the HL Growth Fund, most bond investments are managed in a way that removes currency risk from the returns. The returns quoted above are with the impact of currency fluctuations removed.

Looking ahead

As the fourth quarter unfolds, the world is adjusting to the reality of a second term Trump presidency, following the Republican US election victory in early November.

The market reaction has been positive overall, and the US dollar has strengthened in the weeks since the election result. Considering Trump’s “America First” policy agenda, his stance on climate change and focus on de-regulation to create conditions for growth, there have been clear winners and losers. Smaller companies in the USA, the wider technology sector and the banking sector have all enjoyed share price rallies, while the clean energy sector has suffered large losses.

Bond markets on both sides of the Atlantic have concluded that, as a result of a Trump presidency in the US and higher tax and government spending in the UK, inflation is likely to be more persistent in the future. Bonds have fallen because of these developments.

Past performance is not a guide to the future. The comparator is the IA Mixed Investment 40-85% Shares TR

* The HL Growth Fund launched on 15 December 2021. N/A means full year figures are unavailable. Source: Lipper IM, to 30 September 2024.

Unless stated otherwise, figures are expressed in GBP terms, to show the returns experienced from the perspective of a UK investor.

Important notes: Investing for longer increases the likelihood of positive returns. Over a period of five years or more, investments usually give you a higher return compared to cash savings. But investments can go down as well as up in value, so you could get back less than you put in.

Once invested in a pension, your money is usually no longer accessible until at least age 55, rising to 57 in 2028.

The HL Growth Fund is managed by Hargreaves Lansdown Fund Managers Ltd, a subsidiary of Hargreaves Lansdown Plc.