Are you an intermediary working with a client considering what retirement vehicle to invest in? Here are five key advantages of Old Mutual’s smoothed bonus portfolios.
1. They cater for aggressive as well as conservative investors
Old Mutual’s smoothed bonus solutions are divided into two risk groups, the Absolute Growth and Core Growth Portfolios, to cover the full risk appetite spectrum. The Absolute Growth Portfolios, or AGP, have target ranges between CPI + 4.5% and 7%, with an 83% exposure to equity, property and alternatives. This high exposure to growth assets works well for the more aggressive investor or those who still have a long time before retirement.
The Core Growth Portfolios (CGP), on the other hand, target a lower CPI + 2% to 5%. These portfolios invest 61% in growth assets, and their more conservative approach is well-suited to investors who want to be less aggressive or those who are nearing retirement.
2. They deliver top-tier performance
Old Mutual’s smoothing products comprise 80% of the South African smoothing market share, with roughly R180 billion of funds under management. The flagship portfolio in the range, Absolute Smooth Growth, has consistently outperformed its smoothed bonus peers in five- and 10-year comparisons.
The same goes for Core Growth 90, with its bonuses also ranking well above similar portfolios in each year of comparison.
The reason for this success, especially for the Absolute Smooth Growth, is that the underlying portfolio driving the performance is significantly more aggressive relative to the typical smooth bonus portfolios in the market, with 10% to 20% more exposure to growth assets. Intentionally targeting this growth asset exposure has consistently delivered strong returns and will likely continue doing so in the future.
The bonus performances also speak to the strong performance of the underlying portfolios overall, since the key driver of success over the long term is underlying returns. These underlying balanced funds have therefore also significantly outperformed their competitors. All in all, members are getting a materially better outcome by investing in AGP, or CGP, particularly over the long term, given the delivery of returns from the underlying portfolio.
3. Access to assets not many other funds enjoy
A key differentiator of Old Mutual’s smoothed bonus funds, relative to other balanced funds, is a generous investment in alternative assets – locally and offshore. These assets include impact investments in infrastructure and private equity, a very popular space right now that’s generating very strong returns, and in some instances, private equity investments have generated internal rates of return in excess of 40% on an annualised basis.
Accessing these types of private equity investments at the onset of the investment during the capital raising period, as is the investment strategy behind our portfolios, allows them to enjoy great returns over the long term. Past examples of successful investments include Consol (which was sold to Ardagh Group) and Sorbet (which was sold to Clicks).
4. Guarantees protect members’ investments
Both AGP and CGP include investment guarantee options, which means investors can choose to have from 50% to 100% of their investment protected against market downturns. These guarantees also speak to the type of investor the portfolios are suited to, with CGP offering up to 100% guarantees and AGP providing up to 80% of fund value guarantees.
In practical terms, that means a member who has invested R100 000 into AGP Stable, with its 80% of fund value guarantee, will leave with no less than R80 000 (when exiting due to a guaranteed benefit event e.g. retirement or death, among others) regardless of how low the markets are when they cash out. Similarly, if their investment grows to R150 000, they’ll leave the portfolio with no less than R120 000, even during a market slump.
5. Active management and smoothing at low fees
With higher targets and large growth asset exposure, AGP charges very competitive fees. These fees remain low for what investors get in return. AGP Smooth, for example, has a total investment charge of 85 basis points (on the SuperFund platform) – something very few other balanced funds, or any funds in the retirement space, can charge while providing a similar exposure to growth assets as well as the protection of smoothing. It’s kind of like having your cake and eating it, too.
Comparing the investment management fee and capital charge (75 basis points) with the AlexForbes Manager Watch™ survey, other funds may charge as high as 1%, while not providing the protection of smoothing to protect a member’s investment along their journey. When considering total investment charges, the difference between AGP’s 85 basis points and competitors becomes even more stark, making its key advantages all the more compelling.
If you’d like to know more about how smoothing and guarantees work, read this article and watch this video on our content hub.
And if you’d like to know more about Old Mutual’s smoothed bonus range for group retirement clients, get in touch.