The Absa Monitor survey shows that retirement portfolios have enjoyed exceptional returns. But the future may not hold the same promise.
Retirement fund members in balanced retirement fund portfolios saw their nest eggs increase by on average a sizzling 38 percent over the three years and almost 24 percent over one year to September 30.
But the word from asset managers is that fund members, whose retirement money is invested in balanced funds, should temper their expectations of receiving the similar spectacular returns in future.
Bernard van Wyk, the head of manager research at Absa Asset Consultants, says the past year has been an exceptional period for financial markets with the local equity market returning nearly 50 percent.
Investment returns came substantially from the JSE Securities exchange, which continued to set new highs during the third quarter of this year, he says.
Absa Asset Consultants prepares the Absa Monitor, a survey which examines the performance of retirement fund portfolios available to South African pension funds, at the end of every quarter.
The survey compares the performance of funds across a range of categories and on a range of criteria.
Balanced portfolios
Looking at the return of funds in the category for balanced funds with a global mandate over the past three years to the end of September, the top fund was Allan Gray Life Global Balanced Portfolio with a return of 26.6 percent.
In second slot over the three years was the Allan Gray Full Discretion Fund with 26.1 percent and in third place was the Foord Segregated Full Discretion fund with 25.5 percent.
All three of these top performers in this category maintained their ranking over the three years period from last quarter's survey.
The portfolio that delivered the poorest performance over three years in the category for funds with a balanced global mandate, the Stanlib Segregated Full Discretion portfolio, gave its investors just under 21 percent. This portfolio slipped into last position this quarter, from second-last position last quarter.
Significant margins
Over the three years, inflation was only 3.1 percent a year so all the funds beat inflation by a significant margin, thereby growing the wealth of retirement fund members in real terms.
The investment managers of portfolios 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 the regulatory limitations on offshore investments.
The latest survey by Absa Asset Consultants for the first time distinguishes between balanced funds with a fixed asset allocation and balanced funds with a flexible asset allocation. As the name suggests, investment managers with flexible asset allocations have some discretion (within the regulatory asset class guidelines laid down by Regulation 28 of the Pension Funds Act) to vary the proportion of shares, bonds, cash and property within their portfolios.
However, investment managers with fixed asset allocations choose a fixed allocation of assets upfront and manage the portfolio within a close range around their long-term strategic asset allocations.
Van Wyk says the distinction between balanced funds with a fixed asset allocation and those with a flexible asset allocation was necessary. because it is not fair to compare the performance of a fund with a fixed asset allocation to one that has a flexible asset allocation.
For instance, if a flexible asset allocation fund has performed exceptionally well due to a run in the equity market and it holding say 75 percent of the fund in equities, the fund with a fixed allocation of only 60 percent in equities, would be unable to achieve a similar performance because of the constraints on the equity component of its portfolio.
Because the fixed asset allocation funds are not comparable against each other or with the flexible asset allocation funds, these funds are not given a performance ranking.
Performance benchmarks
Past performance does not guarantee future performance and when choosing a portfolio in which to invest. You should also consider other important measures of returns.
Others measures that were used to compare portfolios include: an analysis of how a portfolio has fared in relation to its own benchmark, the volatility of returns, and the level of risk a fund took to deliver inflation-beating returns.
Within the catergory for balanced funds with a global mandate, the Foord egregated Fund came out tops for beating its own benchmark by 7.3 percentage points a year.
Two RMB Asset Management portfolios did a pretty good job of beating their benchmarks too. The RMB Segregated Full Discretion portfolio beat its benchmark by 4.9 percentage points a year and the RMB Managed portfolio beat its benchmark by 4.6 percentage points a year.
Four of the 29 portfolios in this category failed to beat their benchmarks. These are the Stanlib Segregated Full Discretion portfolio (-1.9 percentage points), the Stanlib Preferred Asset portfolio (-1 percentage points), Sanlam's Global Unique portfolio (-0.5 percentage points) and the Advantage Fulcrum Balanced portfolio (-0.7 percentage points).
Volatility
The portfolio that delivered the least volatile performance over three years in the balanced fund category was the Investment Solutions Medium Equity portfolio. The volatility of this portfolio was 8.1 percent a year over the three years. The portfolio that delivered the most volatile returns against its benchmark was the Stanlib Preferred Asset Portfolio with a volatility measure of 13.1 percent a year.
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 performed.