Don’t neglect your nest egg post-retirement

March 29, 2021
Kim Zietsman - Head: Business Development and Marketing, Laurium Capital
The growth of Balanced Funds

Prior to 2011, Regulation 28 prescribed maximum limits to pension funds total assets, which meant individual members could choose the exposure to asset classes that was not Regulation 28 compliant. For example, a person could choose to have 100% of their retirement savings in equity funds. Post 2011, pre-retirement investments needed to comply with Regulation 28 with limitations imposed on riskier asset classes like equity. Retirement products use Collective Investment Schemes (unit trusts) extensively, which explains for a large part why Balanced Funds have grown significantly in popularity and represent the largest category of funds as reported by the ASISA stats.

Investment Growth

Investing post-retirement

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. However, no asset allocation limits to post-retirement savings apply, so individuals may choose to invest outside the constraints of Regulation 28. But many investors don’t review their investment choices post retirement and remain invested in Balanced Funds when perhaps they should be considering funds that are less constrained and have the flexibility to include a higher allocation to risky assets.People are living longer, and longevity is a real risk to not being able to retire comfortably.

Multi-asset flexible funds are generally positioned between balanced and equity funds and are unconstrained. If well managed, they may outperform balanced and equity funds, while protecting downside risk, with lower volatility over time. Given the wider investment limits, they are the ultimate expression of a manager’s view. They are able to allocate to asset classes where they see value and reduce exposure to asset classes that face headwinds. The flexible fund category is dominated by smaller boutique managers. In South African equity markets, and especially in these extraordinary times, size matters. Being a boutique manager that is nimble and able to react quickly is very advantageous. The flat organisation structure of boutiques means that investment decisions are made and implemented quickly.

The risk of a broader flexible mandate is the wider dispersion of outcomes – it is therefore more important in this category to have a solid understanding of what kind of return profile the manager is attempting to achieve than in other more restrictive fund categories.

Launched in February 2013, the Laurium Flexible Prescient Fund (The Fund) aims to outperform CPI +5% and has a secondary objective of beating the South African equity market with lower volatility. The fund has an annualised performance of 11.9%, placing it 3/33 in the ASISA SA Multi-Asset Flexible category over time, outperforming the average of the category by 4.2%. Those who have used the Fund as a proxy equity building block have been rewarded, outperforming 81/83 of the general equity funds at lower volatility over the past eight years. Key to this performance is asset allocation, select special situations and successful stock-picking based on strong fundamental analysis by an experienced cohesive team.

Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. CIS prices are calculated on a net asset basis, which is the total value of all the assets in the portfolio including any income accruals and less any permissible deductions. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request. Laurium Capital (Pty) Ltd is an authorized FSP (FSP34142). Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to Annualised performance: Annualised performance shows longer term performance rescaled to a 1-year period. Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request.Retirement assets represent a significant portion of the formal domestic savings pool and the South African JSE equity market capitalisation. Government regulation of the retirement sector aims to protect the elderly against poverty and reduce spending on old-age grants, so it is no surprise that the retirement fund industry has been subject of much debate and seen extensive legislative changes.

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