Sanlam Employee Benefits launches new quantitative balanced fund
Sanlam Employee Benefits (SEB) has launched a new balanced fund which uses an innovative quantitative risk model to smooth volatility and limit capital loss during market downturns. Designed for long-term retirement savings, the Dynamic Growth Fund actively varies the portfolio’s asset allocation between equities, bonds and cash, according to market conditions. The fund is aimed at cautious investors, who continue to be risk averse as jittery markets show no sign of long-term stability.
The height of the global financial crisis may have subsided somewhat, but it has changed the face of the global economy and left many retirement fund members feeling unsure about their investment choices. “Gone is the bold risk appetite of the pre-2008 global crash. Instead, it has been replaced by caution and uncertainty,” says Danie van Zyl, head of guaranteed investments at SEB. “This environment has promoted a growing preference for funds with a conservative investment approach.”
However, while conservative balanced funds may have traditionally filled this need by their lower exposure to equities, the Dynamic Growth Fund takes a step further by using its quantitative risk model to move to cash when the market declines. This way it can cushion the capital value and limit capital loss. As the market recovers, the risk model uses the opportunity to move from cash to equities and bonds allowing the fund to benefit from a rising market. The allocation between cash and non-cash assets (equity & bonds) will therefore vary according to market conditions and is not fixed as is often the case with traditional balanced funds. A balanced fund with a low fixed allocation to equity would on the other hand lose out on the returns during an upswing. Through our quantitative risk model the fund can aim for long-term capital growth through unlimited upside and limited downside.
“One often finds that members invest and disinvest from the stock market at the wrong times, delaying their switch to equity when the market is already close to its peak and then switching to cash in a panic after the market has crashed. The Dynamic Growth Fund takes these market timing decisions off the member’s hands.”
Van Zyl says that the quantitative risk model was developed by Sanlam Structured Solutions and is modelled on one of Sanlam’s existing shareholder capital portfolios, which has a solid track record and performed well during the turbulent markets of 2008. “We have built up considerable expertise in managing portfolios dynamically over the last few years, using the quantitative risk models that they have developed.” As at 1 January 2010 Sanlam Structured Solutions was managing policyholder liabilities in excess of R2.4bn on a similar basis. “The new Dynamic Growth Fund has been designed to sit between smoothed bonus portfolios and moderate/aggressive market linked portfolios in our capital preservation risk/return fund range,” concludes van Zyl.
