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Metropolitan Life: Smooth Bonus Portfolio continues stellar performance

07 May 2008 Alethea Pietersen

Metropolitan Life: Smooth Bonus Portfolio continues stellar performance

Investors in Metropolitan Life’s portfolio of smoothed bonus funds can expect a healthy boost to their current policy values based on recently declared bonus rates for 2007 of between 18% and 25%.

This places Metropolitan Life once again as the top performer in the smoothed investment portfolio class over a 3, 5, 10 and 15-year investment horizon.

 

Endowments - Average Bonuses to 31 Dec. 2007

 

Metropolitan Life

Competitor A

Competitor B

Competitor C

Competitor D

CPI

Past 3 years

20.63% (1)

18.94%

13.63%

18.87%

19.31%

6.16%

Past 5 years

20.15% (1)

18.07%

12.90%

17.62%

16.54%

5.61%

Past 10 years

13.11% (1)

11.75%

9.33%

11.29%

12.26%

6.40%

Past 15 years

13.84% (1)

12.74%

10.40%

11.74%

12.52%

7.10%

 

A lot has been said about high charges, but the importance of fund out-performance should not be underestimated.  If an investor earns 1% less per annum by choosing a particular smooth bonus fund that has underperformed, it has roughly the same drag on returns as paying an extra 1% fund charge over the investment life time. 

A smoothed investment portfolio strives to provide investors with exposure to potentially strong inflation-beating equity returns, but without the accompanying volatility. Such volatility can see investors lose a large portion of their invested capital when markets take a sharp downwards turn.

However, going into 2008, South Africans could face the most difficult investment conditions in many years, with disposable incomes under pressure, uncertainty in the local and global political and economic landscape and significant financial market volatility. Coupled with recessive fears surfacing locally, the set scenario tends to unnerve people and it is common knowledge that investor’s anxiety in downturns exceeds euphoria in upturns.

Greg Buckle, Head of Retail Product Development, believes Metropolitan is well placed to continue its stellar performance.

Says Buckle: “Our asset managers have contributed to our strong showing in this investment space by focussing on predicting the best performing asset class i.e. equity, bonds, property or cash. Being overweight in the best performing asset class is usually the largest component driving investment return in a balanced portfolio such as Smooth Bonus.”

One of the biggest risks investors can face is that their funds might be depleted over time by inflation. They therefore have to ensure that their savings outgrow inflation. Opting for too defensive strategies, however, they stand guaranteed to lose.

Metropolitan’s Smooth Bonus Portfolio, however, offers a great option for the investor that does not want to risk losing their capital, but still wants to enjoy strong inflation-beating investment yields.

This stability is critical if there is likely to be a need for the investor to withdraw some money from the investment before maturity date, perhaps to meet a temporary shortfall in the budget or to retire early.

The smoothed bonus fund also significantly reduces exposure to short-term investment market volatility.  This is very important for policyholders who cannot afford to be directly exposed to the market right up to their policy’s maturity date.

A comparison between inflation as measured by CPI and the investment bonuses for retirement annuity policies invested in Metropolitan Life’s Smooth Bonus Portfolio yielded the following: the bonus outperformed inflation by 15.15%, 15.45%, 7.45% and 6.74% per year, for 3, 5, 10 and 15-year time horizon respectively – endowment policies gave similar results.

 

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