A look at bal­anced funds for your re­tire­ment

The Star Late Edition - - COMPANIES -

BAL­ANCED funds have be­come a pop­u­lar choice for in­vestors choos­ing un­der­ly­ing unit trusts for their re­tire­ment funds. This is be­cause they are an ex­cel­lent ve­hi­cle for long-term re­tire­ment sav­ings, ac­cord­ing to Anet Ah­ern, chief ex­ec­u­tive of­fi­cer at PSG As­set Man­age­ment.

“The ma­jor­ity of bal­anced funds sit in the South Africa multi as­set low, medium and high eq­uity sec­tors.

“As at Septem­ber 2016, these sec­tors hold ap­prox­i­mately 39% of the to­tal as­sets un­der man­age­ment in South African-reg­is­tered unit trusts.

“Funds in these sec­tors have re­stric­tions re­gard­ing the as­sets in which they can in­vest. This makes them au­to­mat­i­cally com­pli­ant with Reg­u­la­tion 28 of the Pen­sion Funds Act.

“Funds that com­ply with Reg­u­la­tion 28 may have up to 75% of their as­sets in eq­ui­ties, de­pend­ing on their man­dates.

“While volatile over the short term, eq­ui­ties have demon­strated the abil­ity to grow the most above in­fla­tion over the long term.

“As bal­anced funds can pro­vide in­vestors with the max­i­mum per­mis­si­ble ex­po­sure to growth as­sets over time, they give in­vestors the growth en­gine they need dur­ing the ac­cu­mu­la­tion phase of their re­tire­ment sav­ing strat­egy,” says Ah­ern.

She says as funds in the multi as­set sec­tors can in­vest across a very wide range of as­set classes, both in South Africa and be­yond our borders, this al­lows them to pro­vide their in­vestors with a large de­gree of di­ver­si­fi­ca­tion across many in­dus­tries, coun­tries, re­gions, cur­ren­cies and as­sets.

Be­cause di­ver­si­fi­ca­tion de­creases risk, in­vestors in these funds can achieve solid re­turns at lower lev­els of risk.

Ah­ern ad­vises that a pro­fes­sional man­ager man­ages and reg­u­larly re­bal­ances an in­vestor’s port­fo­lio, which is an ad­van­tage as fund man­agers have the knowl­edge and ex­pe­ri­ence to gen­er­ally avoid as­sets that are more likely to lose value from time to time, and to ac­quire and hold as­sets that are more likely to in­crease in value from time to time.

In ad­di­tion, in­vestors know that their man­agers will be able to switch their ex­po­sure to the op­ti­mal mix of as­sets quickly and ef­fi­ciently, with­out them hav­ing to com­plete la­bo­ri­ous doc­u­men­ta­tion and fol­low a slow trans­fer process.

Ah­ern points out that of­ten an in­vestor will have the same bal­anced fund avail­able as an in­vest­ment op­tion in their re­tire­ment fund, preser­va­tion fund and within a liv­ing an­nu­ity.

“This means that in­vestors in these funds can stay in­vested in the same fund through­out their full sav­ing, preser­va­tion and in­come-draw­ing cy­cle.

“They can gen­er­ally re­tain these in­vest­ments even when they change jobs,” she ex­plains.

In­vestors in unit trusts are not sub­ject to cap­i­tal gains tax (CGT) in re­spect of pur­chases and sales made within the unit trust.

As bal­anced funds have the broad­est ex­po­sure to the var­i­ous as­set classes, in­vestors are able to gain or re­duce ex­po­sure to dif­fer­ent se­cu­ri­ties, in­stru­ments and cur­ren­cies with­out this trig­ger­ing a CGT event.

“As­set al­lo­ca­tion is a skill, and a ma­jor de­ter­mi­nant of in­vest­ment re­turns,” says Ah­ern.

“Bal­anced funds have a num­ber of ad­van­tages for the av­er­age in­vestor, and it is for this rea­son that these funds con­tain such a large pro­por­tion of in­vestors’ sav­ings – whether they are ac­cessed via com­pul­sory re­tire­ment prod­ucts (like pen­sion, prov­i­dent, preser­va­tion or re­tire­ment an­nu­ity funds) or via di­rect dis­cre­tionary in­vest­ments,” she adds.

Anet Ah­ern, chief ex­ec­u­tive of­fi­cer at PSG As­set Man­age­ment.

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