Pension savings should register good returns in the long term – Stanlib

The country’s leading asset management company has a word of comfort for South Africans worried about the performance of their pension fund’s investments – their nest egg could be in better shape than they think.

STANLIB says “the prognosis is largely reassuring” for retirement funds with a five-year investment view or longer with strategic commitments to quality companies that deliver good corporate earnings.

Reassurance comes from Thobelani Maphumulo, head of STANLIB’s multi-asset team and lead manager on its core equity portfolio, a franchise with numerous institutional clients.

Maphumulo notes: “Concerns about retirement fund investments are understandable, given the extent of the equity market sell-off. Week-by-week price movements can be dramatic, but it is important to look at the bigger picture. When investors realise losses they become permanent. The opportunity cost of locking-in losses is extremely high in the long term.

“Pension fund investments driven by a five-year view or longer have history on their side and should cope fairly well. Everything depends on the investment objective and horizon”.

“If you’re in the market to make enough money to buy a wall-mounted hi-definition TV a few months down the line, then your strategy is probably in tatters about now. But If your horizon is shorter than three years, you shouldn’t be in equities.”

A STANLIB study of JSE performance since 1960 shows that five-year rolling returns have never gone negative and usually remain north of 10%, often by a substantial margin.

When the yardstick is a three-year rolling return, the JSE All Share Index has only moved into negative territory three times; at the end of the ‘60s and marginally in the mid-70s and 1998.

Long-term pension fund investment managers benefit from cyclical trends and the underlying growth of the economy as reflected in the earnings achieved of quality companies with strong management and robust business models.

These factors underpinned average annualised ALSI capital growth (excluding dividends) over 40 years of 14%, similar growth over 20 years, 15% over 10 and 22% over five years.

“Over the long term, share prices follow earnings and dividends,” says Maphumulo. “This explains our focus on quality companies, great management and attractive valuations. When time horizons shorten for those nearing retirement, equity allocations should be reduced to cushion short-term volatility.

“Funds committed to these principles may be doing significantly better than some gloomy members assume.”