Old Mutual’s smoothed funds declare a positive bonus through turbulent markets

2011 was an eventful year in many respects. Unexpected events, including the ‘Arab Spring’ uprisings in North Africa and the Middle East, the devastating Japanese earthquake and tsunami formed a backdrop to a turbulent period on global markets. Investors

Through these turbulent times and volatile global markets, Old Mutual declared a total bonus of 8.2% for tax exempt investors and 7% for private investors (net of investment fund charges and tax) on its range of smoothed funds for 2011. Importantly, the Old Mutual Flexi Smoothed Bonus Fund has now seen its 27th consecutive year of positive declarations.

Says Jaco Gouws, Product Marketing Manager at Old Mutual: ”There can be little doubt that this fund has helped many investors build their retirement nest egg without incurring due risk in the process. Smoothed bonus type funds are probably more topical and relevant in the current market volatility; investors continue to seek downside protection with the added advantage of inflation-beating returns over the medium and longer term.”

The JSE All share index returned 2.6% for 2011. Inflation was at 5.1% and the average balanced fund returned 5.6% last year, according to Morningstar. This means the Old Mutual Smoothed Bonus Fund not only allowed investors to sleep peacefully and enjoy inflation-beating returns, but also outperformed the average balanced fund by almost 3%.

Of course it is not only about the last year. The Old Mutual Smoothed Bonus Fund is an excellent long-term vehicle for investors building their retirement capital. The Smoothed Bonus Fund has given investors outperformance on balanced funds (17%) and inflation (12%) over the last five years.

In a smoothed fund, the manager holds back some of the investment growth during times of strong market performance and allocates additional growth during times of poor market performance, thus smoothing out the short-term ups and downs of the market.

Old Mutual’s smoothed funds hold a balanced portfolio of assets, which include South African equities, bonds, property and some international assets.

These funds also provide further protection through minimum return guarantees. While investment into a market-related fund without any guarantees has the potential to earn a slightly better long-term return, the price of a higher return is greater risk and volatility. Smoothed funds therefore provide investors with investment growth and peace of mind.

“If you reach retirement age when markets are down, a smoothed fund investment offers you a level of protection when exiting the fund that is unavailable to investors in directly market-linked funds. Furthermore, the fund continues to deliver outstanding returns in the current market conditions,” says Gouws.

“Several risks remain to the global economic outlook, though the US economy appears to be on a sounder footing. Europe is still grappling with its debt problems, even as its economy is slowing. Greece has managed to secure a second bail-out, narrowly avoiding default, but their future remains uncertain. Investors will also keep a close eye on China as its economy cools.

“Given this uncertainty, it is important for investors to focus on a proven investment strategy that rests on sound investment principles,” concludes Gouws.