Many shocks and surprises occurred in the first quarter of 2025, significantly impacting stock markets and the investment world at large. These included a slew of surprise announcements by Donald Trump, record cryptocurrency heights, and tech companies and indices blindsided by the sudden rise of Chinese rival AI DeepSeek – to name just a few.

“Market volatility is nothing new; it is the rhythm of investment,” says Dennis Murray, Divisional Head & Principal Investment Consultant at Old Mutual Corporate Consultants, and investment consultant to Old Mutual SuperFund. “South Africa’s equity markets have weathered numerous storms, from the devastating 58% decline in the late 1960s to the sharp 21% drop during COVID-19. Globally, we have seen remarkable resilience following the dot-com crash and pandemic-related downturns. And throughout history, time and time again, we have learnt that markets recover, expand, and reward the patient investor.”

It may be tempting to disinvest during a downturn and move into more conservative assets, but Murray advises against chasing market trends for four simple reasons:

1. Market cycles are natural and inevitable. Reacting to every fluctuation means missing the recoveries that follow.
2. The data is undeniable: Long-term investors consistently earn positive real returns. Short-term investors may sometimes outperform the market, adds Head of Smoothed Bonus & Investment Strategy Marvin Nair, but they cannot consistently do so.
3. Diversification works. Spreading investments across asset classes cushions the impact of volatility.
4. Market timing is a fool’s errand. The “periodic tables”, as shown in our note of returns, demonstrate the impossibility of consistently predicting top performers. As Nair puts it, “time in the market is better than timing the market”.
   

Murray says: “We recognise market cycles and look for strategies to harness them, not fear them. By emphasising sustained growth over time and strategic diversification across asset classes, we maximise the probability of inflation-beating returns. Above all, we champion patience – the essential ingredient for investment success.”

The solution: Smoothed Bonus funds

Smoothed Bonus funds are designed to outperform inflation in the long run through high-growth asset exposure, while “smoothing out” the volatile returns of the underlying assets. By managing short-term volatility in this way, asset managers can provide a balanced investment experience, says Nair, helping clients achieve steady growth while minimising the impact of market volatility.

A popular choice during periods of high market volatility, Smoothed Bonus products level out the peaks and troughs in the following key ways:

1. Bonus declarations: The funds declare bonuses periodically, which are added to the policyholder's account. These bonuses are based on investment performance but are set to reflect the fund's long-term growth rather than short-term fluctuations.
2. A smoothing mechanism: A portion of the portfolio's underlying returns is retained in a reserve. This reserve can then be used to support bonus payouts during periods of lower performance, effectively cushioning the impact of market downturns.
3. Diversification: The underlying investments are diversified across various asset classes, including equities, bonds, and property. This diversification helps reduce volatility and contributes to a more stable return profile.
4. Long-term focus: The Smoothed Bonus funds are designed with a long-term investment horizon in mind. This approach allows the fund managers to take a more measured approach to investment decisions, focusing on sustainable growth rather than reacting to short-term market movements.
   

Our Smoothed Bonus portfolios have two investment mandates, ranging from aggressive to conservative, while granting commensurate exposure to growth assets such as local and global equity, alternatives, and property. They also offer policyholders the choice of four guarantee levels, applying to their fund value according to the risk level they are comfortable with.

“Our flagship Absolute Growth Portfolios (AGP) product, in particular, is designed to see through the noise and maintain high growth asset exposure throughout an investor’s journey,” says Nair. “This is critical to ensure upside participation through various market cycles.

The power of patience

Adopting a disciplined approach to investing delivers multiple benefits, Murray concludes. Investors are more likely to achieve their long-term financial goals and enjoy superior risk management through strategic diversification. A disciplined approach also protects investors from making emotional decisions during periods of market volatility, while enhancing their confidence through deep investment understanding. Investors become more adaptable to evolving market conditions without abandoning their core principles, and benefit from consistent course correction through regular portfolio reviews.

This type of strategy directly targets what matters most to retirement fund members. How? By offering:

1. Maximum long-term growth potential through optimal growth asset allocations suitable for varying risk profiles.
2. Capital preservation options that enable strategic diversification, including exposure to alternative asset classes (those being a key differentiated source of returns, particularly in our Smoothed Bonus portfolios).
3. Inflation-beating returns that protect members’ purchasing power.

Peace of mind from a consistent, proven approach that withstands market storms.

Want to know more? Watch this three-minute video in which Fanele Zwane, Investment Specialist at Old Mutual, outlines the benefits of smoothing.