Retirement fund sector in good hands with top fund managers
• Coronation, Investec and Allan Gray are leading players with Prudential rising up the ranks
It was known as Fica for a while, but it has gone back to its original name of CIA. This is the acronym for the fund managers that dominate the balanced retirement fund sector: Coronation, Investec and Allan Gray. The “F” was dropped because of the recent bad run of returns from Foord Asset Management, which is now focused more on its sparkling new Singapore office than its legacy office in unfashionable Pinelands.
I think the next acronym should be Capi, as it is about time Prudential was treated as a top-table manager. It had a very strong 12 months to April, with a 10.4% return from its global balanced fund. Only Investec, with 9.6%, came close.
Yet even Prudential was once described to me by a consultant as “a compromise between Old Mutual and Allan Gray”, a pragmatic value house with a rather generous definition of what makes up value.
I am a bit fed up with these “valuer than thou” debates. Schroders even has an online measuring tool, like something Discovery might use to measure your vital signs, only in the Schroders case it is to measure if you are a value true believer.
I am glad to say that none of the CIA — and I am a client of all of them — likes to be labelled. A partial exception would be Chris Freund at Investec, who is a dedicated follower of earnings revisions, but I am not sure that qualifies as a style.
Asset consultants are highly conservative and find there is less reputational risk if they stick to the larger players. It is the old adage that nobody got fired for buying IBM. Not a very admirable approach, especially as it cuts out a whole swathe of black-owned asset managers, but it is understandable.
If you look over 10 years, in which there are 15 surviving balanced managers on the Alexander Forbes Large Manager Watch, Coronation is top on 12.6%, Investec third with 11.8% and Allan Gray fifth with 11.6%.
Asset consultants who would have found selecting CIA too much work wouldn’t have done a bad job selecting Investment Solutions’ (now Alexander Forbes) Performer, which was fourth on 11.6%. This is a multimanager fund that has been invested predominantly into the CIA balanced funds. Prudential has not been as successful at gathering assets, in spite of being second over 10 years with a 12% return. But with about R250bn under management this is more than enough for CEO Bernard Fick to live the Stellenbosch lifestyle, though I would recommend that he doesn’t get too involved in the racehorses.
Over five years the tables are topped by PSG Asset Management with 13.5%, almost four percentage points ahead of its benchmark. It is just over five years since the charismatic Anet Ahern took over as CEO after long stints at Allan Gray, BOE and Sanlam. Yet PSG Asset Management is largely ignored by the asset consultants and focuses almost entirely on the retail and financial adviser market. But PSG must be the leading challenger brand in the retirement fund market today.
The old school, life insurance-owned brands have gone quiet. Old Mutual Asset Management was a contender when it was a powerful, unified team. Now the shop is so fragmented that retirement funds are lucky to have more than a couple of investment professionals working on their portfolios. But it still has one highly competitive product called Profile Edge 28, which over five years is in fact ahead of Allan Gray.
Sanlam is a good shop with capable staff, yet at 10th out of 15 over 10 years and 13th out of 20 over five years, it just scrapes a passing grade. It made a mistake letting go of its more aggressive fund managers, such as Claude van Cuyck and Kokkie Kooyman, who formed a separate business called Denker Capital.
As for Stanlib, probably the less said the better. All that can be said in its defence is that it hasn’t come stone last: Cadiz (now Warwick) Global Balanced did worse over five and 10 years. Of course, Manager Watch is a guide and not a god: I am confident Foord’s recent poor run doesn’t indicate its potential.
The authoritative personal finance column in the Washington Post advises people heading into retirement or even already retired to take a side hustle in the gig economy.
Only a few years ago we would have called this taking on some freelance work on the side. The gig economy comes without pension or medical aid benefits, but individuals can and should provide for this. It is certainly not a millennial fad as 31% of workers in the gig economy are baby boomers, about a third of these having already retired.
In the US by 2020, 40% of the workforce will consist of these freelancers, whether full-time or side hustlers. The online investment firm Betterment says a third of them will take on extra work as they will see a lack of retirement savings otherwise. No less than 69% are already doing gig work to pay off debt. And one in five gig workers will pick up incremental gig work after retirement.
The US has a much more established culture of taking a second, or even a third, job than Europe or perhaps even SA. CNBC highlighted some examples of gig workers: Ella Tyler after retiring as an attorney now helps students prepare for the law schools admission test, which later expanded to teaching Americans English as a second language and business writing. As well as earning $27 an hour, she continues to use her professional skills.
Gig workers have to put up with unpredictable schedules and finances, but many believe they have richer lives and greater opportunities than those in corporate life. But saving is tougher and no doubt many will envy the 157,000 people with more than $1m in their 401(k) funds, company-sponsored defined contribution schemes.
PRUDENTIAL HAD A STRONG 12 MONTHS TO APRIL, WITH A 10.4% RETURN FROM ITS GLOBAL BALANCED FUND