Category Investments

Original SA guaranteed fund declares positive bonus for 43rd consecutive year

31 August 2009 Old Mutual Corporate
Seelan Gobalsamy, Managing Director of Old Mutual Corporate

Seelan Gobalsamy, Managing Director of Old Mutual Corporate

In a 12 month period characterised by significant market volatility and severe losses in the retirement savings of many investors, the Old Mutual Guaranteed Fund - the group’s longest running Smoothed Bonus Fund for institutional investors - has o­nce again delivered a positive bonus declaration.

The 2.5% annual bonus declaration for the year ended 30 June 2009 extends the Fund’s track record of 43 consecutive years of positive returns to investors.

Over the same period, the JSE All Share Total Return Index lost 24.9%, while the average balanced fund in South Africa declined by 8.1%1 o­nly o­ne local balanced fund produced positive returns during the year.1

“While we are pleased to be able to declare a positive bonus for the year, what makes this fund so special is its consistent ability to reduce volatility substantially in the short-term, yet continue producing returns in excess of inflation in the long-term,” says Seelan Gobalsamy, Managing Director of Old Mutual Corporate.

On average, the Guaranteed Fund has delivered real returns 4.8% above inflation each year since its first bonus declaration in 1967. This includes the difficult market environments of 1987, 1998, 2003 and now 2008. The bonus declarations of the Guaranteed Fund over the last five years have more than doubled members' retirement savings.

By way of illustration, to generate R1 of accumulated savings at 30 June 2009, an investor need o­nly have made a lump sum investment of 1/3rd of a cent o­n 1 July 1967. Put differently, more than 99 cents in the R1 represents the growth earned over the 43 year period.

Gobalsamy says the advantage of being invested in a fund offering low volatility and stable returns has been evident over the last 12 months. “For members exiting their investment in the Guaranteed Fund during the last year, whether through retirement, retrenchment or other uncertain events, the benefits paid have been cushioned against the severe market downturn".

“Members who remain invested have continued to see positive growth o­n their savings. Prudent bonus declarations during periods of performing markets, and an efficient reserving mechanism has helped to make this a reality.”

The state of investment markets over the year to 30 June 2009 has meant significant pressure o­n asset managers to deliver favourable results. However, portfolio managers within the Old Mutual Investment Group have expertly managed the assets underlying the Guaranteed Fund, with favourable outcomes.

Roger Birt, Head of Guaranteed Investments at Old Mutual, says an appropriate exposure to direct property and alternative investments resulted in the underlying portfolio being less adversely affected by the severe equity markets, through sound asset allocation decisions. The underlying portfolio has delivered 7.1% per annum o­n average over the three years to 30 June 2009, while the average balanced fund returned 6.9% per annum1 over the same period.

Birt says the underlying portfolio performance translates into the bonus smoothing reserves of the Guaranteed Fund being better positioned for a reasonable declaration.

The capital position of Old Mutual South Africa, which is used to support the guarantees of its South African policyholders, remains strong at 30 June 2009, at 3.9 times that required for statutory purposes based o­n the Interim Financial Results of Old Mutual Life Assurance Company (South Africa).

According to Birt, the positive bonus declaration for the Guaranteed Fund ranks the Fund alongside newer generation smoothed bonus funds now offered by Old Mutual. These funds, including Old Mutual Absolute Growth - arguably the largest Smoothed Bonus Fund for institutional investors in South Africa,have also delivered positive performance over the year.

“These funds offer investors looking for stable returns an enhanced value proposition, catering for more needs from the market, including higher prospects for long-term returns, monthly formula-driven bonuses, increased transparency and a wider array of risk/return choices (ranging from low cost options which simply reduce volatility risk, to fully protected options). As the Guaranteed Fund continues to deliver o­n its fundamental aims, these newer funds assume similar objectives, while continuing to meet the specific needs of the market.”

1 Source: Alexander Forbes (Large Global) Manager Watch survey for the month ending June 2009.

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