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Marriott Solutions for Retirement

07 August 2019 Marriott

The last five years have been particularly difficult for retired investors in South Africa as both Equity and Balanced Funds have delivered below average returns. This has meant many investors drawing an income have seen their capital values decrease. Given the recent negative GDP growth figures and the uncertain outlook for South Africa, retired investors are becoming more concerned about their capital and whether it will last for their entire retirement.

The table below highlights the low sector average returns from both South African General Equity and Balanced (Multi Asset High Equity Sector) Funds since 2015.

 

Average

SA Equity Fund Returns

Average

SA Balanced Fund Returns

2015

1.5%

7.4%

2016

2.7%

1.4%

2017

12.7%

9.9%

2018

-9.0%

-3.7%

2019*

0%

3.4%

Annualised Returns

1.5%

4.0%

Source: Profile Data, * refers to year to date returns as at 31 May 2019

 

Traditionally retired investors have relied on market returns to fund their income. However, with future returns being uncertain and expected to be below average, investors are looking for different approaches to solve their income needs in retirement.

Marriott offers an alternative approach to retirement planning where investors spend the income produced by their investment and not the capital to ensure a successful retirement. By drawing only the income produced investors can be assured that their capital will last. To implement this approach and to ensure a growing income level in retirement, it is critical for your investments to be able to distribute a reliable and growing income stream over time. Clicks forms part of the Marriott investable universe due to its proven dividend track record as illustrated below.

Marriott restricts its investable universe to quality companies that are able to produce sustainable and growing dividends. These companies are responsible for generating the income for our investors into perpetuity, and therefore investing in quality businesses is paramount. Over the long-term companies of this nature tend to produce solid income and capital returns. The table below highlights the income characteristics (income yield & income growth) of some of the holdings in the Marriott portfolios, across asset classes.

Asset Class

Companies

Income Yield*

Growth in Income**

Equities

Clicks

2.4%

12%

Spar

4.6%

9%

Sanlam

4.6%

7%

Standard Bank

5.7%

12%

Netcare

6.1%

10%

 

Property

 

Growthpoint

9.1%

3%

Vukile

9.2%

3%

Investec Property

9.6%

5%

Bonds

Long Term Government Bond (R2035)

9.6%

0%

Cash

Money Market Type investments

7.0%

Fluctuates with interest rates

Source: IRESS & Marriott

* refers to forward yield (income expected over the next 12 months) **refers to income growth after year 1

 

Equities tend to pay out a lower level of income but have higher income growth over time when compared to property and bonds. Bonds and Property on the other hand provides investors with a relatively high level of income to start with but the trade-off is lower income growth over time. Marriott uses these asset classes to construct portfolios optimizing the income yield and income growth investors are able to draw throughout retirement.

Solutions for Retirement:

At Marriott, we suggest that investors examine their situation carefully before using their capital to supplement income. Instead we encourage investors to ‘spend the income not the capital’ for a more certain retirement outcome. Marriott’s Solutions for Retirement enables investors to follow this philosophy by matching the income drawn to the income produced by the portfolio. The table below highlights the targeted investment outcomes and unique income characteristics of the four Marriott funds that underpin our solutions.

With an exclusive focus on retired investors, Marriott’s Solutions for Retirement provides investors with a realistic expectation of what their investment outcome is likely to be from an income perspective. Below we’ve highlighted two different investors and how their income needs can be catered for with Marriott.

Investor 1 – needs to maximize retirement lifestyle in real terms

Investor 1 has R3 million and needs the highest possible income that will keep up with inflation over time. The fund that is managed with this client in mind is the Essential Income Fund. It has a starting yield of approximately 6% and has an expected growth in income over time between 4%-6% p.a. This means the client can start drawing a monthly income of R15 000 initially and grow that annually where they are able to draw approximately R25 000 a month in 10 years.

The fund has a targeted asset allocation which is balanced in nature with approximately 45% exposure to equities, 32% exposure to Property, 20% exposure to long term government bonds and 3% exposure to cash currently. The below highlights the expected outcome for an investor that follows the ‘spend the income not the capital’ philosophy using the Essential Income Fund over the next 10 years.

Quick Polls

QUESTION

Do you think that ESG focused funds are more successful than traditional funds?

ANSWER

Yes, the stats do not lie
No, the stats regarding value lack context
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