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Category:
Investment
News /
Investments /
August 2006
Record bonus declaration for SA's largest guaranteed fund
Old
Mutual Corporate has declared the highest ever bonus rate, and real
total return, on the Guaranteed Fund since the inception of the
portfolio almost forty years ago.
With a CPI inflation rate of 4.9% for the twelve months to June, the
26% bonus rate declared for this period equates to a real (in excess
of inflation) return of over 21%. The bonus rate is gross of tax and
investment administration fees.
For
investors in the Guaranteed Fund, the strong bonus declaration means
that while they have participated in the strong performance of the
JSE over the last year, they now have the comfort of knowing that a
portion of their returns are locked in during the period of
volatility currently being experienced by the equity markets.
The
guaranteed portion of the bonus declared to June 2006 is 10%, which
also comfortably exceeds the inflation rate for the year.
Braam Naudé, Head of Institutional Smoothed Bonus Portfolios at Old
Mutual, explains that the assets backing the Guaranteed Fund
benefited from the excellent market performance of the past three
years.
"Even allowing for the 26% bonus the Guaranteed Fund remains well
positioned to deliver on its objective of providing ongoing
inflation-beating returns with greater stability than the market.
"The most recent market volatility only confirms what we already
knew: that uncertainty is certain! In particular, the perception
developed over the last three years that market conditions are only
positive, is unlikely to be sustained."
He says smoothed bonus portfolios recognize this uncertainty and
their design has proved capable of managing it. "Therefore, the
declaration of this exceptional bonus does not inhibit the
confidence we have in our ability to declare positive, stable
bonuses when the investment markets are not performing."
Meeting the long term needs of investors
The
graph below shows annual Guaranteed Fund returns and annual CPI
inflation, on a rolling 5-year basis since inception of the
Guaranteed Fund. It demonstrates that Guaranteed Fund returns have
met or exceeded inflation, over each 5-year period shown, except
briefly during the late-1970's, at the end of a prolonged period of
declining markets in a relatively high inflation environment.
With
investors clamouring for stable long-term real returns, the
Guaranteed Fund's track record of an average annual real return of
7.8% over the last 10 years and 4.8% over the last 39 years shows it
is clearly able to meet these needs.
As
well as their short term needs
In
addition to meeting the long-term objectives of investors, a
fundamental aim of the Guaranteed Fund is also to provide relatively
stable returns in the shorter-term.
The
Guaranteed Fund has never exposed its investors to a negative
return, not even when volatile markets dragged investors into the
red, illustrating the robustness and resilience of the product in
all market conditions.
The
graph below shows the distribution of returns on a notional balanced
portfolio (comprised of 60% JSE All Share Total Return and 40% All
Bond Total Return) and the Guaranteed Fund each year since inception
in 1967. With a far narrower range of returns, the Guaranteed Fund
has clearly been more stable than the market.
This
illustrates how Guaranteed Fund returns have been concentrated in
the range 5% to 20% (85% of returns have fallen within this range) -
clearly demonstrating how the smoothing mechanism, the fundamental
feature underlying the Guaranteed Fund, stabilises volatile market
returns.
Source: ITInews – Insurance
Times and Investments Online
www.itinews.co.za
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