South Africa’s lower inflation rate is an opportunity for retirement funds to increase their allocation to cash, to achieve meaningful inflation-beating returns and reduce risk, says Sean Segar, the head of cash solutions at Nedgroup Investments.
Segar said that, for the first time since August last year, inflation is back within the South African Reserve Bank’s target range of 3% to 6%, and the Consumer Price Index for April was a lower-thanexpected 5.3%, with the outlook for a stable environment looking good.
He said this creates an opportunity for retirements funds given the high levels of risk and uncertainty in the markets.
“The flat yield curve means that cash is also a good alternative to bonds, as it offers similar yields, without the volatility of returns. With so much happening on the domestic front and internationally, and with rating agencies camping in the country, bonds are vulnerable to capital loses. Many believe that for similar yields cash is a safer bet,” he said.
Segar added that, because retirement funds aim to earn steady, inflation-beating returns, they generally allocate to cash to provide a predictable and consistent positive return, not to