Strong performance by local equities, due to the weaker rand and excellent company results, translated into outstanding returns in the second quarter of this year.
Balanced retirement fund portfolios have produced exceptional returns over the past two years, but you should temper your expectations for the long term.
This is the word from Francois Viljoen, the manager of asset consulting at Absa Consultants and Actuaries, following the release of the latest quarterly survey of the performance of retirement fund portfolios.
The Absa Monitor for Retirement Funds shows that the average global balanced retirement fund portfolio produced returns of 36 percent in the year to June 30, 2005.
The strong performance of all the portfolios in the survey was mainly due to the excellent performance of the local equity market over the past two years, Viljoen says.
The strong performance of local equities continued in the second quarter of this year, on the back of the weakness of the rand combined with excellent results from companies that are benefiting from the good economic growth. Performance was also helped by improved global sentiment towards equities, specifically in Europe, he says.
The survey categorises portfolios into aggressive, balanced and conservative mandates, based mainly on the portfolios' exposure to equities.
Balanced portfolios
Over the three years to the end of June this year, the average global balanced portfolio delivered a return of 16.8 percent.
The investment managers of port-folios with a global balanced mandate may invest across the range of asset classes of shares, bonds, property and cash both locally and offshore, subject to regulatory limitations.
The Allan Gray Life Global Balanced portfolio, with a return of 21.6 percent a year, again produced the best performance relative to its peers over the three years to June.
The portfolios placed second and third in this category over the three-year-period also maintained their rankings from the previous quarter.
In second spot was the Allan Gray Full Discretion portfolio, with a return of 21.1 percent a year. This portfolio was the top performer over five years (26.7 percent a year) and 10 years (23.6 percent a year).
The Foord Segregated Full Discretion portfolio, with a return of 20.3 percent a year, was placed third.
The lowest return over the three- year period came from the Mcubed Diversified 50 portfolio, which, nevertheless, delivered a respectable 13.8 percent a year. Inflation over the same period, as measured by the Consumer Price Index, was 3.8 percent a year. However, the Mcubed Diversified 50 portfolio delivered its return with a fairly low risk: in terms of volatility, this portfolio was the second-best global balanced fund.
Other categories
Over three years, the Investec Absolute Opportunity Fund, with a return of 21.2 percent, was the top performer among the portfolios with a global aggressive mandate. Among global conservative portfolios, the top slot went to the Coronation Absolute Fund, with a return of 20 percent a year for the three-year period.
Performance benchmarks
The survey not only analyses how the portfolios have performed relative to each other, but also how the portfolios fared in relation to their individual benchmarks and to inflation.
Within the global balanced category over three years to June 2005, the Allan Gray Life Global Balanced Portfolio, with a Sortino ratio of 3.5, provided investors with the best risk-adjusted returns relative to inflation. The higher the Sortino ratio, the better a portfolio has fared relative to the risk of the portfolio under-performing inflation.
The Stanlib Segregated Full Discretion portfolio, with a Sortino ratio of 1.3, took on the most risk relative to inflation per unit of return in the global balanced category over the three-year period to June.
How well a fund has performed in relation to its benchmark is another important performance measure.
The Foord Segregated Full Discretion portfolio achieved top honours for beating its own benchmark by 8.2 percent over the three years to June 2005.
Two RMB Asset Management (RMBAM) portfolios achieved the second- and third-best performance relative to their benchmarks. The RMBAM Segregated Full Discretion portfolio beat its benchmark by 5.7 percent, while the RMB Managed portfolio out-performed its benchmark by 5.4 percent.
The Investment Solutions Medium Equity portfolio delivered the most consistent returns (in other words, it had the lowest volatility) over the three years to June 30.
How the survey affects you:
The returns of the portfolios included in the Absa Monitor may or may not affect you. Ask your employee-sponsored retirement fund or the company from which you bought your retirement annuity (RA) policy if your fund is invested in one of these portfolios. Your retirement fund or RA may have invested in a tailor-made portfolio with one or more investment manager, in which case the performance of the portfolios in the survey will not reflect the returns you, as an individual fund member, will have received. Even if your fund has not invested in any of the portfolios included in the Absa Monitor, it includes all the major portfolios offered by South African investment managers and therefore reflects how these market-linked portfolios have fared in general.