Getting performance right
Managers on target despite the market
TWO COMPONENTS OF a medical aid fund have to operate efficiently for it to work properly and provide sufficient benefits for members. The medical scheme must be adequately funded and it must grow, preferably at a higher rate than inflation and medical inflation.
Getting that right depends largely on the investment managers who look after the fund. It’s not an easy job. Asset managers running medical scheme funds are bound by the restrictions of Regulation 30 of South Africa’s Medical Schemes Act. That imposes sensible – but nonetheless restrictive – limitations on what the asset manager can invest in: for example, setting a limit on the percentage of equities that can be used in a portfolio.
The latest Alexander Forbes Asset Consultants’ Medical Aid Manager Watch Survey shows, not surprisingly, that funds have taken a bit of a knock over the past year, except in the money market fund category. However, over three years the benefit of having equities in a medical scheme portfolio becomes clear. It’s the long-term view that’s important. Medical schemes are long-term plans for the benefit of members.
Participating funds in the Alexander Forbes Asset Consultants’ survey fall into three categories: absolute return funds, money market funds and balanced funds. Most set different benchmarks, so absolute performance isn’t the basis for the ranking of the funds.
Heading the absolute return category is the Cadiz Capital Preservation Fund. It sets a benchmark of headline CPI plus 3% and over one year has a return of 9,33% against the benchmark’s 16,43%. That may seem way off the benchmark, but the latter part of the year coincides with one of the most turbulent times we’ve seen in the SA equities market in a long time.
Over three years the fund has gained 11%/ year compared with the benchmark’s 11,43%. That’s about on target. The slight shortfall would also be the result of recent conditions on the JSE.
The Taquanta Medical Cash fund heads the money market funds section. Those funds lead over one year, also a reflection of the volatile equities market and the decent returns high interest rates are affording cash as an investment. The Taquanta fund gained 12,1% over the year against the benchmark (the Shortterm Fixed Interest – STeFI) 10,94%. Over three years the return is a more humble 9,67%, though it’s comfortably ahead of the benchmark’s 8,87%.
The Allan Gray Life Stable Medical Portfolio heads the balanced fund section. That fund also sets a benchmark of headline CPI plus 3% and has a return of 9,02% for the year, a little lower than the Cadiz absolute return fund. But over three years the balanced fund shows its mettle, with a return of 15,6%/year. That’s significantly ahead of the benchmark’s 11,43% and of the performance of the Cadiz fund. But an absolute return fund shouldn’t be trying to outperform its benchmark, so the Cadiz fund is doing its job pretty well.
However, the balanced fund versus the absolute return fund’s performance supports a view I’ve long held – that balanced funds can do the job of an absolute return fund but with more potential on the upside. And most often at a lower cost.
Importantly, all the top ranked funds have comfortably outperformed medical consumer price inflation of 6,56% over one year and 6,06% over three years.