One’s retirement years are often referred to as the golden years. It is the stage where you have hopefully retired, got the kids out of the house and shaken off the daily worries of a working life. One large caveat to enjoying the golden years is being able to do so without the burden of financial insecurity. For most citizens, the retirement nest egg is their largest asset.
Some of the reasons for investors underfunding their retirement is not saving enough, not starting early enough and not taking enough risk at a young age. Assuming you have managed to build a nest egg and have been able to retire, the difference between growing old and living out your golden years can come down to how the nest egg is invested post-retirement.
This is especially true given the extended life spans of the average person these days relative to history. Professor Stuart Kim of Stanford University recently stated, “I think there are those alive today who will live to be 200 years old.” Hard to imagine!
With the largest accumulation of wealth at hand and an extended timeline, one can be grateful that there are no asset allocation limits applied to post-retirement savings or living annuities (LA). Individuals may choose to invest outside the constraints of Regulation 28, as well as the offshore limitations of the SARB. So as a South African retiree with all this flexibility, what should one consider?
The full menu is now available. At Laurium, when asked how we invest our own money, the response from most of our team includes our Laurium Flexible Prescient Fund and at least one of our three South African hedge funds. The primary reason for this is that they are the most unconstrained mandates that we manage without the restrictions of Regulation 28, for example, and so reflect the best ideas we have to offer.
In the case of the Laurium Flexible Prescient Fund, the additional flexibility has allowed the fund to generate returns 3% ahead of the SA equity market (FTSE JSE Capped SWIX and FTSE JSE All Share) per annum since February 2013. This cumulative net alpha of 31% has been generated at 80% of the volatility of the SA equity market. This would fit in the longer-term investment portion of a LA, and not a fund a retiree should choose to harbour shorter-term funds. This medium to shorter-term need leads me to one of our hidden gems at Laurium.
Of our three hedge funds, the Laurium Market Neutral Prescient RI Fund perhaps exhibits the best qualities for inclusion in a LA. It utilises equities yet hedges out almost all of the market (beta), exposing the underlying investor to the best ideas, which Laurium believes will outperform on a relative basis. The beauty of the fund is that the reduced volatility has not resulted in reduced performance over time. Investors in the Laurium Market Neutral Prescient RI Fund have experienced the same sort of low volatility as lower equity multi-asset portfolios but have received performance in excess of the SA equity market, net of fees, over time.
Over the same time period as discussed for the Laurium Flexible Prescient Fund, the Laurium Market Neutral Prescient RI Fund has generated a cumulative net alpha of 5% but at 50% of the volatility of the SA equity market. The Market Neutral Prescient RI Fund is daily priced and offers daily liquidity.