Our quarterly insights on the investment industry
The introductory article to this series summarised the three retirement savings options that typically are available to employees. These retirement savings vehicles include pension funds, provident funds and group retirement annuities. Under the umbrella of these primary options, employers generally compose one or more options for you, as an employee, to consider.
In 2009, Nedgroup Investments launched the first true low-cost balanced unit trust portfolio in the South African market, namely the Nedgroup Investments Core Diversified Fund. In early 2010, we added the Nedgroup Investments Core Guarded Fund.
Even with the benefit of hindsight, few would have predicted the 34% return from the JSE Resources Index since mid-2013.
We thought it would be interesting to see how these funds have progressed in the last year in terms of assets under management (AUM) and performance. This will provide insights into where current investor money is flowing and where fund selectors currently see global investment opportunities.
South African interest rates have declined significantly in recent years. From December 2008 till July 2012, the South African Reserve Bank (SARB) has lowered the benchmark repo rate from 12% to 5%. This cumulative decline of 7% drastically impacted income fund yields. As a result, investors could no longer earn the 8% per annum income yields they were previously accustomed to without taking on inappropriate levels of credit risk.
Five years ago, the universe of equity funds that had a ten-year track record was only half the size of the universe today, and the magnitude of outperformance was higher at 2% p.a. Ten years ago, the universe was half as large again, and the magnitude of outperformance was even higher at 2.6% p.a. This
Even though there isn’t much trading at low valuations, patient investors will be rewarded in future.
Treasury’s Retirement Reform proposals aim to ensure that as many South Africans as possible save enough money during their working life so that they can retire comfortably. In this edition, we specifically look at the proposed tax-free savings vehicle, which we think is a great incentive.
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