There’s been stomach-churning volatility in investment markets for the past few years, and 2020’s Covid-19 crisis and crash did little to steady investors’ nerves. Times like these highlight the benefits of Smoothed Bonus solutions, yet investors don’t necessarily know about all the options available to them.

As the default investment for the Old Mutual SuperFund, Old Mutual’s Absolute Growth Portfolios (AGP) tend to get most of the attention. But as Robin McLaurie, Acting Head of Retail Distribution: Smoothed Bonus Funds at Old Mutual Corporate, points out, the CoreGrowth Portfolio is well worth considering if you need a more conservative investment option.

‘CoreGrowth is like AGP’s little brother,’ he says, ‘and not just because it has fewer assets under management, but also because of the way the fund is managed.’

To his point, AGP’s underlying asset allocation includes 83% in growth assets; whereas the CoreGrowth Portfolio has a lower allocation to growth assets (61%), lower exposure to local (26%) and offshore (17.75%) equities, and a higher allocation to local and global interest-bearing assets (32.5% and 6.75% respectively).

‘That makes CoreGrowth a more risk-averse portfolio than AGP, which – comparatively speaking – is a more aggressively managed balanced fund,’ McLaurie explains.

Aggressive approach

A lot of that has to do with its history. ‘CoreGrowth was born out of an era when our older Smoothed Bonus funds were very conservatively managed,’ McLaurie says. ‘AGP is far more aggressive. The strategy behind CoreGrowth is to be conservatively managed.’

Because of that built-in smoothing, both the CoreGrowth 100 and CoreGrowth 90 funds come with guaranteed protection of investors’ capital and growth.

‘CoreGrowth 100 has a 100% guarantee and Coregrowth 90 offers a 90% guarantee on capital invested and bonuses declared,’ says Lourens Joubert, Inland Area Manager for Retail Distribution at Old Mutual. ‘When we talk about guarantees, that means that we will not declare a negative bonus on the CoreGrowth 100 Fund. Even if the value of the underlying portfolio falls, your capital will be protected by shareholder capital.’

This makes CoreGrowth a good choice for investors who are risk-averse, worried about losing capital, or reluctant to live through sharp market drops – as so many investors experienced in March 2020. ‘The events of 2020 sparked a move towards money markets and income funds that offer a lot of protection in the market,’ says McLaurie.

CoreGrowth offers a haven for investors who don’t want to risk losing too much capital, but also want the benefits of seeing some growth in their investments. ‘The capital protection offered on CoreGrowth 100 is very similar to that of a money market investment,’ says McLaurie, ‘but while money markets are mandated to protect capital over a one-year period, CoreGrowth 100 has an additional mandate to deliver a real return of CPI+2.5% over the long term. CoreGrowth 90, meanwhile, is more like a low-equity balanced fund. There you’re looking at expected returns of CPI+3.5% over the long term.’

A money market alternative

Part of the reason McLaurie and Joubert are so keen to talk about CoreGrowth is that the funds have recently undergone exciting changes.

‘We’ve removed the notice periods on CoreGrowth funds, which is great for clients who want more liquidity,’ says Joubert. ‘We’ve also changed the way bonuses are declared. Historically those bonuses were discretionary, but they will now be formula-based. This provides greater transparency, because investors can see the formulas and form accurate expectations of what the bonuses are likely to be over a given period.’

CoreGrowth 100 and CoreGrowth 90’s guarantees are to support Benefit Payment Events. ‘This means that if there is another major market event, investors will receive the smoothed fund value and not the underlying value of the portfolio on qualified benefit events,’ McLaurie explains. ‘That adds a layer of protection to funds which already provide a conservative investment approach and capital protection guarantees.’

With many investors still licking their wounds after the shock of 2020’s market crash, that extra investment safety net seems more attractive than ever.

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