Old Mutual’s Guaranteed Fund Declares Favourable Returns In Volatile Times
During a period which has seen severe volatility in investment markets resulting in the majority of balanced market-linked funds1 and absolute return funds2 recording negative real returns, the Old Mutual Guaranteed Fund has declared a 13% bonus for participating retirement funds for the year to 30 June 2008. For example, the declared bonus compares favourably to typical balanced funds, which have delivered 0.70%1 on average for the year.
The recent bonus declaration has continued the successful long-term track record of the Guaranteed Fund. While past performance is not necessarily a guide to future performance, the Fund has provided positive returns in each of the 41 years since its inception in 1967. Over that period, the Guaranteed Fund has provided real growth in members’ wealth with an average return above CPI inflation of 5.1%.
“The Guaranteed Fund’s performance substantiates trustees renewed interest in smoothed bonus investments and underlying security through guarantees,” says Trevor Pascoe, head of Investment Services at Old Mutual Corporate. “This renewed interest was highlighted in the recently released Old Mutual Retirement Fund Survey, which revealed that 6 out of 10 retirement funds see room for smoothed bonus products in a life-stage portfolio, while 40% of funds interviewed are willing to pay a premium for capital guarantees.”
The Guaranteed Fund invests member’s retirement savings in a well-diversified balanced portfolio, which has performed well during a difficult period in local equity markets. Alternative Assets and Direct Property investments are two asset classes that have contributed to the favourable bonus declaration with some high quality underlying investments. The portfolio’s investments include exposure to, and are managed by, 11 of the 12 boutique investment houses of the Old Mutual Investment Group (South Africa) (OMIGSA), including approximately 50% of the Domestic Equity portfolio being managed by Umbono Fund Managers, a passive index tracker.
In addition, favourable smoothing reserves built up from the local equity market bull-run between 2004 and 2007 has enabled the Guaranteed Fund to continue favourable and positive returns, significantly reducing the risk to members who have claimed benefits from their retirement savings in these volatile times.
De Wet van der Spuy, Head of Guaranteed Investments at Old Mutual (Corporate) says the strategy consistently adopted by the Guaranteed Fund since 1967 uses a reserving mechanism to absorb the impact of the peaks and troughs associated with investing in a diversified underlying investment portfolio, while in the longer term delivering net real returns to investors in line with such exposure, and has proven itself under the wide range of market conditions experienced since 1967.
“Notwithstanding the favourable bonus, the Guaranteed Fund was positively funded at 30 June 2008 and immediately after the bonus declaration. This should provide its investors with some confidence in its robustness going forward,” says Van der Spuy.
The graphs below show how the Guaranteed Fund returns compare in magnitude and volatility to a typical balanced fund1, comparative absolute return fund2 and the money market3 over the last three years to 30 June 2008. It demonstrates that Guaranteed Fund returns have delivered growth consistent with typical balanced and absolute return funds shown, over the period, but with significantly less volatility. The analysis also positions the Guaranteed Fund as an attractive alternative to cash investments, typically used as protection strategies during periods of volatile markets, but which may impair return prospects, depending on the timing of switching to a cash portfolio.
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1 Source: Median return to 30 June 2008, Alexander Forbes (Global) Large Manager Watch survey for the month ending June 2008
2 Source: Average return to 30 June 2008, for the CPI+5% category of funds participating in the Alexander Forbes Absolute Return Manager Watch survey for the month ending June 2008
3 Source: Alexander Forbes Money Market Index
