Old Mu­tual Edge28 Life Fund

Finweek English Edition - - INVESTMENT -

When it comes to in­vest­ing in a re­tire­ment an­nu­ity, pen­sion fund or preser­va­tion fund, one has to com­ply with Reg­u­la­tion 28 when struc­tur­ing the un­der­ly­ing in­vest­ment port­fo­lio. Reg­u­la­tion 28 lim­its the ex­po­sure that one is able to have to cer­tain as­set classes, and one of its ob­jec­tives is to en­sure di­ver­si­fi­ca­tion when it comes to in­vest­ing pen­sion monies. One of the lim­its im­posed by Reg­u­la­tion 28 is that the in­vestor may not have more than 75% ex­po­sure to eq­ui­ties.

A com­mon com­plaint from clients and f inan­cial ad­vis­ers is that Reg­u­la­tion 28 seems to work against younger in­vestors who have time to with­stand the volatil­ity of eq­ui­ties and who can ben­e­fit from the higher ex­pected re­turns as­so­ci­ated with the as­set class. They of­ten quote re­turn his­to­ries from the past cen­tury, which show eq­ui­ties to be the best per­form­ing as­set class over the long term. While we agree that eq­ui­ties are of­ten the best place to be in­vested in for the long term, we strongly be­lieve in the prin­ci­ple of di­ver­si­fi­ca­tion, which im­plies that in­vestors should have ex­po­sures to other as­set classes.

The prob­lem, at a prac­ti­cal level, for most in­vestors is that most balanced funds (that com­ply with the re­quire­ments of Reg­u­la­tion 28) are too con­ser­va­tive rel­a­tive to eq­uity funds. Balanced funds are of­ten un­der­weight listed prop­erty, and unit trust balanced funds are not al­lowed to have ex­po­sure to alternative as­set classes such as pri­vate eq­uity and hedge funds. Un­less in­vestors are able to man­age their own port­fo­lios, they may find that they have to set­tle for a balanced fund.

Old Mu­tual’s Macro Strat­egy bou­tique has recog­nised the gap in the mar­ket for an “ag­gres­sive” Reg­u­la­tion 28 com­pli- ant balanced fund and in Oc­to­ber 2011 launched the Old Mu­tual Edge28 Life Fund. In or­der to be able to in­clude alternative as­set classes it has had to shun the Col­lec­tive In­vest­ment Scheme (CIS) (unit trust) struc­ture. This lim­its ac­cess points to the fund, which are pri­mar­ily avail­able in Old Mu­tual pen­sion prod­ucts.

The fund has a per­for­mance tar­get of CPI + 8% per an­num, which is sig­nif­i­cantly higher than the CPI + 5% per an­num tar­get as­so­ci­ated with most unit trust balanced funds. Man­age­ment fees are per­for­mance based and range from 0.75% to 2.5% per an­num, which is not cheap. The fund de­liv­ered a re­turn of 21.67% for the year ended 31 Jan­uary 2013, which is much higher than the 17.06% de­liv­ered by the av­er­age unit trust multi-as­set high-eq­uity balanced fund. It would have ranked 13th out of 104 such unit trust funds over that pe­riod.

It is still a young fund with a rel­a­tively short track record, but younger in­vestors should ben­e­fit from the higher volatil­ity when in­vest­ing on a reg­u­lar ba­sis. They should also ben­e­fit from the higher ex­pected re­turns over time which, cou­pled with the ben­e­fits of com­pound­ing, can prove to be a smart de­ci­sion come re­tire­ment.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.