Coronation cuts fees on its funds
• Retirees play safe despite low return, but fund manager wants them to move up the risk curve
Coronation Fund Managers, which oversees about R600bn in assets, is reducing its investment management fees on three of its funds to encourage retirees to either stay invested in multi-asset funds that offer at least some exposure to growth assets like equities, or to lure back those that have opted for low-risk, lowreturn alternatives.
Coronation Fund Managers, which oversees about R600bn in assets, is reducing its investment management fees on three of its funds to encourage retirees to either stay invested in multiasset funds that offer at least some exposure to growth assets like equities, or to lure back those that have opted for lowrisk, low-return alternatives.
The Cape Town-based asset manager will permanently cut the investment management fee of its Capital Plus and Balanced Defensive funds to 0.75%, from 0.85% previously, and will introduce a fee holiday on its Strategic Income fund, which will see the investment management fee drop to 0.35% from 0.45% for 12 months. The fee reductions on the three funds, which have combined assets under management (AUM) of R86.37bn, will come into effect on April 1.
“We’re reducing the fee on investment management,” Pieter Koekemoer, head of personal investments at Coronation, told Business Day. “It’s an attempt to create a small additional incentive for investors to move back to the appropriate place on the risk curve. In SA the equity market was weak for a period so investors have moved a lot of money to lower risk alternatives [in which] you’re guaranteed to get lower returns while the policy interest rate remains at the lowest level since the 1960s.”
The decision comes with active asset managers under increasing pressure from passive investing strategies, which buy shares in proportion to their weighting on an index and offer lower cost structures. In SA, index-tracking products outperform their actively managed rivals with the S&P indices versus active (SPIVA) SA scorecard indicating that 95% of domestic equity funds underperformed the S&P SA 50 index by 3.3% a year on an asset-weighted basis in the past five years.
But Koekemoer said Coronation’s decision had more to do with its view that too many investors were “derisking” by cashing out of moderate-risk multi-asset class funds, which retain some exposure to equities, and instead investing in low-risk, low-return products like money market or income funds. Despite SA’s equity market weathering the twin storms of subpar domestic economic growth for at least years as well as the Covid-19 pandemic, Koekemoer said many investors were still reluctant to take on greater risk exposure.
The moderate-risk Coronation Capital Plus and Balanced Defensive funds experienced outflows in recent years while the low-risk Coronation Strategic Income fund had seen strong inflows, despite the latter offering lower prospective returns.
Coronation’s latest fund fact sheet data show the Coronation Capital Plus fund has domestic equity exposure of just over 34% with a little more than 20% in international stocks.
The remaining asset allocation is mostly spread between bonds, cash and real estate. The Coronation Balanced Defensive Fund has about 23.5% in local equities and 17% in offshore stocks with a significant allocation to local and international bonds. By contrast, the Coronation Strategic Income fund has no equity exposure other than 0.2% in preference shares with the bulk of assets in government bonds, bank deposits and corporate debt instruments.
“An allocation to local equities has delivered reward for risk since the start of 2019, but this performance improvement has not yet led to a meaningful reallocation of assets by the marginal conservative investor,” said Koekemoer.
“With this fee reduction we aim to encourage a rebalancing of overly defensive portfolios to include a more appropriate level of growth assets.”
IT’S AN ATTEMPT TO CREATE A SMALL ADDITIONAL INCENTIVE