Matching your 2017 investment goals with the right fund

Hywel George, Director of Investments at Old Mutual Investment Group.

The start of a new year is synonymous with reflection of the year that was and developing of new goals and plans for the year ahead. The same can be said for wealth-building strategies, as an astute investor will likely be using this time to update investment mandates in order to ensure that the funds included in their portfolio effectively match their specific investment objectives.

This is according to Hywel George, Director of Investments at Old Mutual Investment Group, who says that there is no one-size-fits-all when it comes to selecting the right fund to invest in, as the optimal selection will differ depending on what the investor is looking to achieve with their investment. “Each fund will have a specific risk profile, investment horizon and asset allocation, uniquely constructed to meet different investment objectives. When reviewing investment plans, investors should therefore ensure that they allocate capital to funds that are aligned with their specific investment goals.”

The economic and investment environment can also impact an investor’s risk appetite. While 2016 was a tepid year in terms of growth for South Africa, 2017 is expected to be better, with many of the shocks experienced over the past few years having waned, such as load shedding, the commodity price collapse and the rand slump.

George explains that a fund’s risk profile is essentially a gauge used to match an investor’s needs to their willingness and ability to take risk. “A risk profile is based on historical performance and asset allocation, and serves as a projection of potential future volatility. These profiles are clearly stated in all factsheets funds, ranging from ‘Low’ to ‘High’.

“For example investors with a high tolerance for risk may choose to invest in the Old Mutual Global Emerging Market Fund, which carries a risk profile of ‘high’, while more risk-averse investors may prefer something like the Old Mutual Balanced Fund, which is profiled as ‘moderate’. Then there are various funds that range between those profiles; the Investors’ Fund, the Managed Alpha Fund and the Global Equity Fund – all of which are profiled as ‘moderate to high’ in terms of risk.”

George says that other factors for investors to consider when selecting a fund is the type of exposure that they are seeking, as funds will differ in terms of asset, sector and country allocation. For an investor seeking country diversification outside of South Africa, they may prefer the Global Equity Fund, which invests in shares from around the world, over the Investors’ Fund, which invests in a broad spectrum of local instruments. An investor seeking exposure to emerging markets, on the other hand, would invest in the Global Emerging Market Fund, which invests in companies either listed on emerging market exchanges or with a significant stake in emerging market countries.”

Elize Botha, Managing Director of Old Mutual Unit Trusts, adds that other considerations that investors should take into account are minimum investment amounts and fees. “Initial administration charges, advisor fees and ongoing performance fees will differ from fund to fund, with the specific benchmark used to measure fund performance. There is also usually a minimum investment required, which for the majority of Old Mutual unit trust funds, for example, is either a monthly contribution of R500 or a lump sum contribution of R10 000. This figure will range between funds and investment houses.”

Botha says that at the end of the day, if an investor is certain of what they are looking for, it is just a matter of finding the fund that best matches their specific objectives. “This, however, is often easier said than done, and is not the type of decision that anybody takes lightly. An accredited financial planner can assist in setting realistic investment goals that are based on an investor’s individual circumstances and preferences, as well as being able to provide advice on which fund is best aligned to achieving these goals,” she concludes.