Old Mutual launches next generation of targeted real return investment portfolios

Old Mutual has launched the next generation of targeted real return investment portfolios for institutional investors in the form of its range of Absolute Growth Portfolios.

This new range targets returns in excess of inflation, while smoothing out returns to protect investors from volatility in the market.

"This approach, along with a significantly higher exposure to equities and alternative investments than traditional smoothed bonus funds, will enable the portfolios to compete strongly with market-related funds while still offering investors protection from short-term market volatility," says Tim Cumming, Managing Director of Old Mutual Corporate.

Cumming says that the Absolute Growth Portfolios also address past concerns about levels of transparency and disclosure within traditional smoothed bonus portfolios.

"Investors will be able to determine their expected monthly investment gains, typically referred to as "bonuses", in advance thanks to the fully disclosed bonus declaration process. Furthermore all charges and fees are fully disclosed. The benefit of this is that retirement fund members have a greater understanding of their investments and how returns are generated."

The Absolute Growth Portfolios range offers three options with different risk-return profiles. The Absolute Secure Growth portfolio has a growth objective of CPI (the inflation rate) +3.5% per annum over three year rolling periods and offers a 100% guarantee. The Absolute Stable Growth portfolio targets CPI + 5.5% p.a. with an 80% guarantee. The Absolute Smooth Growth portfolio targets CPI + 6% p.a. and offers a 50% guarantee.  All guarantees apply on benefit payment.

"This new range is the culmination of 40 years of investment experience that Old Mutual has with smoothed bonus portfolios and the targeting of real returns," says Cumming.

Trevor Pascoe, Head of Investment Services at Old Mutual Corporate, says the concept of smoothed bonus has endured over the decades because it is the only investment strategy that reduces investment volatility without impairing expected long-term performance.

"The risk of short-term market volatility is significantly reduced through the use of a smoothing philosophy. The portfolios use a reserving mechanism to absorb the impact of the peaks and troughs associated with investing in balanced portfolios, whilst in the longer term delivering net real returns to investors in line with such exposure.

Pascoe says the Absolute Growth Portfolios were designed to meet the needs of retirement funds that want to avoid the volatility associated with equivalent market linked investments as well as retirement funds that offer individual member choice.

He points out that institutions don't necessarily need to fit the profiles above to invest in the Absolute Growth Portfolios. "This range is suitable for any fund and its members that wants growth above inflation over the longer term, exposure to active management, protection against short-term volatility and as an option, comprehensive guarantees on benefit payments."