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Investment Builder investment performance

A review of Investment Builder performance against the investment balanced scorecard

Assessing the investment performance of the Investment Builder

An investment balanced scorecard was introduced for the Investment Builder, the defined contribution (DC) part, in January 2023. The year ended 31 December 2023 is thus the first full year reported against the DC scorecard.

The balanced scorecard tracks quantitative and qualitative performance. It provides a structured approach to bring together performance across different categories or strands.

Our scorecards allow the Investment Committee to assess the investment and advisory performance of our in-house investment manager, USSIM, independently and holistically.

The scorecard covers six important categories, which are the same as those for the Retirement Income Builder:

  1. Investment return
  2. Investment risk
  3. Active management
  4. Portfolio resilience
  5. Responsible Investment
  6. Investment advice

The output of the scorecard is a rating on a scale of Very Good, Good, Average, Poor and Very Poor.

The metrics within it are calculated or overseen by the performance and investment risk teams who are independent from the investment team. They are provided to the Investment Committee, who assess the performance of USSIM against the scorecard each year.

In 2023 the Committee concluded on a score of Good for the Investment Builder. It noted that all funds exceeded their CPI-plus inflation targets (the long-term return target) over the year achieving strong absolute returns.

Below are the metrics used in the DC investment balanced scorecard:

You can also view a plain text version in the accordion below

Below you’ll find an analysis of some of the metrics within the DC scorecard that contributed to this rating. All the data is to 31 December 2023 and focuses on the growth funds within our Default Lifestyle Option as this is where most DC assets are invested.

1. Investment return

In this category, we look at the return of our DC funds versus their long term return targets.

Overall DC performance was good, with the funds exceeding their long-term return target over the year and achieving strong absolute returns.

The growth funds within the Default Lifestyle Option had a strong 2023 and were ahead of their one-year target. Over five years, the Growth Fund was ahead of its target, but the Moderate Growth Fund and Cautious Growth Fund were slightly behind. The ethical growth funds within the Ethical Lifestyle Option also had a strong 2023 and were ahead of their targets.

  1 year Absolute 5 years Absolute 1 year vs Real Return Target 5 years vs Real Return Target
Default Growth 9.5 7.6 2.4 0.3
Default Moderate 8.6 6.0 2.5 -0.3
Default Cautious 7.2 4.0 1.6 -1.7

2. Investment risk

In this category, we look at investment risk metrics to measure the volatility of our DC funds.

We measure both experienced volatility and expected (or modelled) volatility and set limits on the latter. Experienced volatility is a measure of how much investment returns have moved around. Expected volatility estimates how much volatility might be experienced looking forward, based on a model of returns. The funds remained within the volatility limits throughout the year.

3. Active management

In this category, we assess how USSIM's actively managed mandates have performed compared to market comparators.

Our growth funds in the Default Lifestyle Option trailed market comparators over five years and are behind on risk adjusted returns basis.

Our DC investment advisor reviewed the USS Growth Fund against 19 UK DC master trust default growth fund returns over the year to 31 December 2023. Equity markets performed strongly over the year and so other funds with higher equity allocations than the Investment Builder performed better. Our diversified portfolio looks to spread investment risk across a variety of factors and regions. As a result, and because 2023 was a year in which private markets lagged their public market counterparts, performance was behind some less diversified, more equity-reliant peer funds. The growth funds exceeded their long-term return target over one year. We believe that using a such a target is in the best financial interests of our members as it allows them to see how their Investment Builder savings are performing relative to inflation over the long-term.

The three scorecard categories below are more qualitative assessments. We have therefore provided some commentary on how USSIM has been measured.

4. Portfolio resilience

In this category, we assess our growth funds’ resilience over time.  

As we mention above, our diversified portfolio looks to spread investment risk across a variety of factors and regions. We measure how much this diversification contributes to reducing volatility in returns for the growth funds.

We also measure the biggest fall in the value of members’ DC savings from its peak to its trough over a given period, to see how resilient the funds have been. Holding a diverse portfolio should help to reduce the likelihood of experiencing large short-term losses.

5. Responsible investment

In this category, we assess USSIM’s progress towards our net zero ambition and its integration of wider Environmental, Social and Governance (ESG) risks into its investment decision-making. 

The scorecard therefore provides a framework for integrating financially material ESG factors into our governance. While these issues have always been important in the assessment of USSIM’s performance, they are now factored in, in a more systematic way, under the investment balanced scorecard approach.

The Investment Committee noted that USSIM had made distinct and clear progress on responsible investment particularly in the following areas:

• DC (Investment Builder) Ethical guidelines

• Stewardship and voting activities

• New DC mandates

• Added focus on external manager oversight processes

6. Investment advice

In this category, we assess the quality of the investment advice provided by USSIM.

USSIM provides investment advice to the Investment Committee on a range of issues. The committee meets regularly to consider investment issues on behalf of the trustee.

USSIM’s investment advice around the new responsible investment ambition and implementation of a new solution to manage foreign currency exchange risk in DC funds were acknowledged as market leading.

  • Further information

    View our Report and Accounts for more information on our investment performance.

    Report and Accounts