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Sunday, March 1, 2009
Smooth sailing

The past year has recorded the worst downturn in global markets in the last eight decades. In 2008 the S&P 500 in the US fell 37.0%, the FTSE 100 in the UK lost 28.3% and in South Africa the JSE All Share dropped 23.2%. While almost all investment funds lost capital over 2008, retirement fund investors in Old Mutual’s Smoothed Performance Fund saw their capital not only protected but actually grow by 6.2%.

“Over the last three years the Old Mutual Smoothed Performance Fund has outperformed the top performing balanced unit trust fund by nearly 3% p.a. This fund has delivered 15.9% p.a. return over the past three years whilst the top performing balanced unit trust fund o­nly returned 13.0% p.a.,” says Steven Levin, General Manager - Product Solutions at Old Mutual.
Such funds are designed to smooth out fluctuations in the market returns of the underlying assets. This smoothing mechanism translates into investors enjoying long-term inflation-beating growth while being protected from the short-term ups and downs of the market. Old Mutual’s smoothed funds also provide further protection through minimum return guarantees.
Levin says that the Old Mutual Smoothed Bonus Fund is the top-performing fund of its kind in SA over the last 24 years, during which time there has not been a single negative return declared in the fund. Its resilient performance has ensured a boost of up to 6.2% to investors’ policy values. “With returns since inception averaging 5% a year more than inflation, there can be little doubt that this fund has helped investors to build the real value of their capital without incurring undue risk in the process.”
Even if you reach retirement age when markets are down, a smoothed bonus investment offers you a level of protection when exiting the fund that is unavailable to investors in unit trust funds. Unit trust funds experience much greater ups and downs when markets are volatile.
“Going into 2009, South Africans are facing some of the most uncertain investment market conditions in many decades, with disposable incomes under pressure, highly uncertain local and global economic environments and significant financial market volatility,” says Levin.
“It is in times like these that o­ne can clearly see the benefits of having invested with a company with a strong financial backing that’s been in the business for 164 years. With returns beating inflation by 8% p.a. over the last three years, the more than o­ne million South African customers invested in o­ne of our range of smoothed funds all have good reason to smile”, he adds.

The benefits of smoothing

Smoothed funds hold a balanced portfolio of assets, which together with a smoothing mechanism ensures a less volatile market ride for investors. The portfolios underlying these funds include South African equities, bonds, property and some international assets.
While investment into a market-related fund without any guarantees has the potential to earn a slightly better long-term return (largely due to the cost of guarantees in smoothed funds), the price of a higher return comes with more risk and volatility. Smoothed funds therefore provide investors with a combination of balanced portfolio growth and peace of mind that adds long-term customer value.

Copyright © Insurance Times and Investments® Vol:22.3 1st March, 2009
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