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Diversified Growth Fund

Our Diversified Growth Fund (DGF) is designed to provide stable long-term growth for pension savings in the NOW: Pensions Trust (‘the Scheme’).

How we use the DGF

The DGF forms part of our ‘pension saving journey’ for Scheme members.

For most of our members’ working lives we invest their pension savings in the Diversified Growth Fund (DGF) to help them grow as much as possible.

Fifteen years before members’ planned retirement age, we gradually switch pension savings to the Retirement Countdown Fund (RCF), which is designed to protect them from falling in value before they’re due to be turned into retirement benefits.

Journey Path to retirement

At planned retirement age, 80% is in the RCF and 20% in the DGF. We call this the ‘Journey Path’.

Unless members tell us otherwise, we assume their planned retirement date is their State Pension age.

What the DGF invests in

The DGF is designed to provide stable growth, above the rate of inflation, without too much volatility (ups and downs in value) over the long term. To achieve this it spreads money across various groups of investments that tend to perform differently in a range of economic conditions, an approach known as diversification.

As part of our recent strategy review, we:

raised the DGF’s growth target by allocating more money to ‘‘return-seeking investments’, and
increased the number of investment groups the DGF uses for diversification from four to five.

The table below shows the five investment groups. The investments are managed across these groups to deliver the return, risk and responsible investing (RI) objectives.

Find out more about our approach to RI.

Equity	Interest	Inflation	Income	Other
Equities (shares) – including developed market equity, emerging market equity and private equity.	Assets which pay cashflows to investors and whose value is primarily affected by changes in interest rates including government bonds, sustainable bonds and interest rate swaps.	Assets whose value is linked to inflation, including inflation bonds (government and non-government), inflation swaps and commodities (excluding fossil fuels).	Assets that pay regular income including investment grade credit, high-yield credit, emerging market debt and illiquid investments, such as property or infrastructure.	Assets that are different to the other investment groups, such as foreign currency and gold.
Purpose in portfolio – generate returns	Purpose in portfolio – manage portfolio risk, generate returns	Purpose in portfolio – manage portfolio risk, may generate returns	Purpose in portfolio – generate returns	Purpose in portfolio – manage portfolio risk, generate returns
Risk exposure: 0-70%	Risk exposure: 0-70%	Risk exposure: 0-50%	Risk exposure: 0-30%	Risk exposure: 0-30%

The DGF’s investment objectives

Find out more in our Statement of Investment Principles (SIP)

Returns

To deliver a return higher than inflation (as measured using the Consumer Price Index) of 4% a year or more over the long term, after taking off the charge for managing the investments.

Risk

The expected risk, measured in terms of annual volatility, is 12.5% a year. The expected range is from 10% to 15%.

RI

Net zero carbon emissions by 2050, consistent with the Paris Climate Agreement, and at least half of the portfolio’s net asset value in investments which support the Trustee’s RI beliefs by the end of 2021.