Can I invest in physical commodities?

Regulation 28 of the Pension Funds Act allows up to 10% of your retirement investment to be in physical commodities. Is there a platform that will allow me to make use of this?

Dear reader

If you are a member of a pension or provident fund, its board of trustees will have chosen a default strategy for the fund. As an investor, you may have the option of choosing between several strategies depending on how conservatively or aggressively you want your funds to be invested.

If you are investing as an individual, you will use a retirement annuity (RA). When implementing an RA on your chosen platform, you will have access to all the available funds on the platform. You may choose to invest in a single fund or a combination of funds, remembering that the allocation must comply with Regulation 28. Your choice may include a combination of funds that are individually non-compliant with Regulation 28 provided that the total weighted allocation of the portfolio is compliant.

Since a commodity fund is a specialised fund and non-compliant with the Act, you must ensure you have a total portfolio that complies with the regulations.

When building your portfolio allocation, each of the underlying funds will invest in securities in alignment with their mandate while using their investment discretion on how much exposure they want to have in the investment building blocks, which may include commodities.

If one of your funds opts to amend its commodity exposure in the fund, to maintain the sub 10% allocation allowance, you must assess the commodity allocation to your portfolio. This may force you to rebalance your investment.

Trading your units and making frequent changes may lead to undesired losses if your hand is forced due to Regulation 28 compliance of your portfolio.

So it is possible to use commodities in your investment and to maximise your exposure, but it comes with a fair amount of management and possible intervention for rebalancing.