Morley announces new core satellite structure with long/short overlay for Life funds

Article date: 17 September 2001

In what is thought to be the first adoption of such a structureby an insurance company, Morley Fund Management(“Morley”) announced today that it is implementing anew index core, long short overlay and active satellite strategyapproach for the management of all the NU UK With Profits Funds.These funds together total circa £57 billion and include £24billion of UK equities which represents some 1.6% of the totalcapitalisation of the UK market.

This new Life Fund structure develops from a core satellitestrategy that was adopted for the NU Life Fund in March 2000. Thishas proved to be highly successful and the concept will now betaken a stage further and will be applied to other Life fundswithin CGNU Group to enable more policyholders to benefit from theexpectation of better returns. The new structure consists of thefollowing components:

  • A Core Index Fund. This accounts for the largest portion ofthe UK Equity funds. It will be managed passively to track theFTSE All-Share Index ex IT.
  • A Long/Short Overlay on the Core. This allows the fund managerto take positive and negative positions in several stocks. Shortselling within the fund is limited to the value of the stockholding within the passive fund, which means that any shortpositions would always be covered by the holdings in the corefund. In effect the overlay fund has to borrow any stock it sellsand then use the proceeds to take long positions.
  • The Balanced Satellite. These account for 20% of the fund. Thesatellites are divided into four sector funds (cyclicals,consumption, financials and growth) benchmarked against the FTSE350 sector indices and a smaller companies fund benchmarkedagainst the HGSCI ex IT. Subdividing the UK equity funds intosmaller portfolios will enable the fund to benefit from a broadrange of specialist fund manager skills and experience.
  • The High Performance Satellites. These account for 3% of thefund. They are divided into three individual high performanceportfolios with high risk profiles; Growth, Value benchmarkedagainst the FTSE 350 ex IT and Small Cap benchmarked against theHGSCI. Although volatility will be high for these satellites thecontribution to the risk of the overall equity fund will be smallbecause of their small size.

Commenting on the Core Satellite approach Gerald Holtham, CIO atMorley Fund Management, said: "This year, Morley was rated bestall-round Insurance Fund Manager in the 2001 Standard andPoor’s awards. We also had the two top rated corporateanalysts in the Reuters awards and came seventh overall forresearch. But we cannot rest on our laurels and we are striving tocontinuously upgrade our investment process. With over £100 billionunder management we are one of the largest investment managementcompanies in the UK and have one of the largest UK equity holdings.We must minimise any potential problems of nimbleness and liquidityassociated with such a large holding. We believe we are doing so byimplementing an innovative investment strategy.

"This structure combines the risk limitation of a passive core,with the added performance of hedge fund techniques withoutleverage using some of the techniques already employed by us in ourinvestment management of MAGIC (the recently launched investmentcompany which incorporates a hedge fund element). This iscomplemented by two groups of satellites: a balanced satelliteorganised into sectors each with its own fund manager, and highperformance themed satellites covering specific styles and assetclasses."

Commenting on the changes to the management of the funds, MikeUrmston, Norwich Union’s Chief Actuary, said: "We are pleasedto announce this innovative approach to the management of our UKWith Profits Funds. We have worked with Morley in agreeing astrategy that will benefit our investors, giving them access to theexpertise of specialist fund management within a framework thatdelivers a low risk strategy. This new fund management approachalso brings consistency across our three with profits funds.Norwich Union is committed to achieving the best performancepossible for its investors and we are constantly looking for waysto improve returns.”

For further information please contact
Morley Fund Management
Gerald Holtham 020 7809 8700

Penrose Financial (on behalf of Morley)
Gay Collins 020 7786 4882
Caroline Deutsch 020 7786 4871

Norwich Union Press Office
James Evans 08703 66 68 78

Notes to Editors

  • Morley Fund Management is an independently managed, Londonbased, asset management business with £106 billion undermanagement. It has investment management operations in London,Boston, Tokyo and Singapore.
  • Morley is a wholly owned subsidiary of the CGNU Group andmanages institutional funds under the Morley brand. It also actsas investment manager for a range of retail investment funds,marketed under the Norwich Union brand.
  • CGU plc and Norwich Union plc merged on 30 May 2000 to createCGNU plc, the UK’s largest insurance group and one of thetop-five insurers in Europe with substantial positions in othermarkets around the world, making it the world’s sixthlargest insurer based on gross worldwide premiums.

Morley Fund Management is a business name of Morley FundManagement Limited (incorporated in England with Registered No.1151805 and Registered Office 1 Poultry London EC2R 8EJ) andNorwich Union Investment Management Limited (incorporated inEngland with Registered No. 2152949 and Registered Office 8 SurreyStreet Norwich NR1 3NG) both regulated by IMRO and members of theCGNU Group

Back to top