1 year ago

Blue Chip Issue 80

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  • Momentum
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Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.


RETIREMENT FUNDS Impact Investing JUST LAUNCHED For the dignity and care of the planet and its people Fran Troskie, Investment Research Analyst, RisCura RisCura introduces two exciting CIS portfolios Investing with dignity and care — these are key themes that we thread through our members’ retirement journey. Retiring with dignity means retiring with the means to support yourself, with the ability to care for your needs and to achieve a desired and sustainable standard Significant of living. What if changes a sense in of dignity the South and African purpose retirement could be fund further funds, personified where in appropriate, how members allows fund for cost their management retirement? while not environment are anticipated over the next few years. The restricting the ability to generate market-beating returns. Impact investing Financial is one such Sector way. Conduct Globally, Authority impact (FSCA) investing has means expressed the impact investments High to Equity redress socio-economic and environmental Low Equity ills, desire to reduce approximately 5 000 pension funds, currently Asset Class Allocation Asset Class Allocation “to generate positive, measurable social and environmental impact” while simultaneously earning attractive returns. And recent surveys of in South Africa, to less than 500. The increased fiduciary responsibilities while still delivering competitive investment returns. Impact investing retirement fund members have shown they want “positive” investments and accountability placed on pension funds by the FSCA over recent has transformed from a mere concept a decade ago to a formalised that leave a lasting legacy (2020 poll by global consultancy firm Bfinance; years has disproportionally increased the time commitment, cost and investment strategy today with a current estimated market size of USD Willis Towers Watson, 2020 Board of Directors Survey: Alignment risk on small employers offering retirement benefits to their staff. 715 billion. RisCura, a global investment firm, with roots in the large of ESG with Executive Incentives and Human Capital Governance; pension fund advisory sector for over 20 years, recently launched Reptrak 2021). At RisCura, investing in a world with a sustainable future has always two collective investment scheme (CIS) portfolios. The offerings been at the heart of what we do. Research has dispelled the myth Cash 2% ILB15 6% Cash 10% ILB15 22% are specifically for small-to-medium sized companies or funds RisCura is helping to make this possible. Using its extensive Normal bonds 9% Property 5% Normal bonds 30% Property 4% that we need to forfeit financial gain for the “greater good”. There are with limited governance bandwidth, giving these entities access institutional Equity 43% knowledge, African Equity RisCura 5% has Equity recently 16% launched African Equity 2% numerous examples where impact investors have netted substantial Foreign Property 3% Foreign DM Equity 17.5% Foreign Property 2% Foreign DM Equity 9% to the same innovative investment ideas that were previously only South Africa’s Foreign EM Equity first 6.5% fund-of-funds China Equity 3% series focused Foreign EM Equity specifically 3.5% China Equity on 1.5% long-run returns, at appropriate levels of risk. And, more importantly, available to their large stand-alone pension fund clients. these income RisCura streams has have been proven instrumental to be stable and in sustainable. using their In South impact investments. investment While a good employee benefit scheme helps companies to Africa, one expertise such example to shape is those the South investors African who pension were first fund movers industry into as we The RisCura attract the Impact best Fund skills Series to their focuses organisation, on unlisted the significant debt, unlisted resources renewable know energy, it today. where Widely returns credited of around as CPI+3-4% the pioneer were of locked liability-driven in property needed and unlisted to run the equity. funds The often solution distracts offers from trustees the a company’s single point core over time. investment, alpha transport strategies and one of the first adopters of entry business into a widely activities. diversified A move portfolio to an umbrella at a competitive fund might cost. very By well of actively managed China-specific investments, RisCura has been be advantageous to both employers and their employees, with Retirees around the world have been hard-hit by the COVID-19 mapping the objectives of the National Development Plan 2023 to the a longstanding and trusted advisor to some of the largest pension the time-consuming oversight and fiduciary burdens passed on pandemic. In South Africa, interest rates are at record lows, traditional targets and objectives of the UN Sustainable Development Goals (SDGs), funds in Africa. Currently, the company influences the investments to the umbrella fund trustees. sources of stable almost income 15-million have South lost their Africans lustre, through and stock its markets pension are RisCura has identified eight priority investment themes (see themes in fund and The move now also allows funds access to the same pension volatile at medical best. The scheme pandemic clients. has also highlighted the glaring socioeconomic ills The prevalent CIS portfolios, in many developed the RisCura and High-Equity developing economies Prescient – image below) to focus the funds’ investments, thereby allowing retirees’ fund investment expertise (previously only presented to standalone funds) via the RisCura CIS portfolios that are currently capital to have an impact across areas such as job creation, agriculture Fund of gender, racial Funds and and income RisCura inequality; Low-Equity widespread Prescient poverty; Fund and of economic Funds, employ and green available energy, on while the offering Robson an attractive Savage Acumen targeted investment Umbrella return. Fund, the vulnerability. a combination Globally, economic of best-of-breed growth has specialist languished, boutique and in managers South that An additional Sanlam benefit Umbrella to retirement Fund and funds, the Fedgroup with their platforms. cashflow and This assetliability matching needs, is that the series of funds has been structured provides Africa, the ensure revival greater is likely responsiveness to be slow and and painful the thanks ability to to its trade unique in volatile members with the peace of mind that their retirement savings are political and market economic conditions. challenges. A combination of active and passive underlying invested with care. by RisCura to allow for some monthly liquidity, while also allowing for a long-term sustainable level of return. Mobilising capital to spur an economic recovery has become essential. Yet, do we want to perpetuate a landscape where inequality, poverty Retirement fund trustees can now give their members access to the and corruption are rife, where essential services are lacking and where impact investments they seek and experience enhanced returns while the environment is needlessly exploited? The answer is a clear no. That restoring dignity and care for the planet and its people. It’s a win-win is why South African investors should, and increasingly are, looking to for all. RisCura Solutions (Pty) Ltd and RisCura Invest (Pty) Ltd are authorised financial services providers. Quality education Quality healthcare Creation of quality jobs Inclusive finance 05/21/RS/SA_RF/TT Nikolaas Delport, Business David Potgieter, co-head for Development for iDFM Services, RisCura iDFM Services, RisCura Infrastructure Clean energy Affordable housing RisCura has been instrumental in using their investment expertise to shape the South African pension fund industry as we know it today. Craig Abbott, co-head for iDFM Services, RisCura Sustainable agriculture

THE BALANCE BETWEEN BEING AN AVOIDER AND AN ASSERTIVE By Florbela Yates, Head of Momentum Investment Consulting We believe in the value of financial advice. Financial advisors play a key role as financial coaches to their clients, often helping clients reduce the effect of their own potentially destructive financial decisions made by biases that could affect their ability to achieve their financial goals. When clients make investment decisions that affect what they should have earned and what they actually earned, they incur Florbela Yates a behaviour tax. There are many types of behaviours that can adversely affect an investment, such as leaving money in cash for too long instead of building a diversified portfolio or switching to funds that appear to be offering better returns. Maintaining focus on a set goal can minimise behaviour tax. Our research* shows that in some cases, behaviour tax can cost an investment 1.11% a year, which amounts to about a 17.5% difference in fund value over 20 years. Through our machine-learning techniques, we have identified client behavioural patterns during market cycles. From the 'avoider's, who don’t take enough investment risk, to the “assertives”, who are overconfident and take too much risk, we have started using this data to show financial advisors personal insights about their clients’ financial personalities and likely investment behaviour. Another investment bias that can affect a client’s financial outcome is if they choose funds based on past investment returns. They use this cognitive shortcut because, with the overwhelming number of funds available, making a strategic choice can be daunting. But the reality is that past returns are not reliable predictors of future returns and offer a false sense of confidence that may ultimately prove disastrous for a client. A landmark study conducted by Momentum Investments and Oxford Risk, based in the UK, during 2020, clearly showed that people in South Africa with the same investment needs were getting very different advice. This occurs because of the timing of when the advice was given, and some of the biases mentioned above. The best way to ensure consistency for clients with the same investment needs is by constructing an investment solution specifically designed to achieve an investment goal. In that way, these clients will always be treated the same. Financial advisors are increasingly partnering with discretionary fund managers (DFMs) to construct investment solutions that are more closely aligned to their clients’ needs. By appointing a DFM to construct and manage their portfolios, advisors can increase the probability of keeping their clients invested and avoid biases. At Momentum Investment Consulting, we understand the importance of building robust portfolios designed to deliver real growth over the investment term, while actively using risk management principles to make sure capital isn’t completely eroded during severe market sell-offs. Everything we do, from asset allocation and fund selection to mandate design, is done to make sure the portfolios are optimised regardless of the current market cycle. We understand the importance of getting clients to their goals and for them to enjoy the journey towards those goals. Because with us, investing is personal. More than half of the people in South Africa retire without sufficient savings, and many are still trying to pay off debt in their post-retirement years. The need to invest in a portfolio that suits their personal needs has never been more pronounced than it is right now. The Covid-19 pandemic has increased people’s need to protect their investments so that they last for the rest of their lives. In these uncertain times, we remind our clients not to panic, to stick to investment goals agreed with their financial advisor and stop worrying about the returns of their friends' investments. While it may be true that the average unit trust in South Africa has battled to significantly outperform inflation in the past five years, it’s worthwhile reflecting on whether it was designed to do so. We are often quick to complain about poor returns, but have we asked ourselves what we were expecting from the fund that we invested in? Did we choose it to meet our objectives, or because it had a good track record? Do you understand the manager’s investment style? What criteria does the investment manager use in selecting the underlying assets they invest in? Are they benchmark cognisant? What percentage is invested offshore? What effect does rand volatility have on an investment? Is the fund actively managed or does it use passive or smart-beta strategies? These factors all affect the way a fund performs. Understanding what to expect from the fund is a great starting point in determining whether it is suitable for a client. If the fund has a benchmark that isn’t aligned to a client’s investment goal, it may well be time to consider an alternative. Momentum Investment Consulting (Pty) Ltd is an authorised financial services provider (FSP32726) and part of Momentum Metropolitan Holdings Limited and rated B-BBEE level 1. *September 2019. The South African investor behaviour tax and helping investors count what counts. Momentum Investments COLUMN We understand the importance of getting clients to their goals and for them to enjoy the journey towards those goals. 23

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