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New passive balanced fund pushes the limits

The Nedgroup Investments Core Accelerated Fund maximises exposure to growth assets.

Over the last ten years South African unit trust investors have shown an overwhelming preference for multi-asset portfolios. Between the end of 2006 and the start of 2017, the amount of money invested in South African multi-asset funds jumped from R111.8 million to R902.5 million.

Flows into these funds has far out-stripped those into any other category over this period. Financial advisors and investors have very clearly seen the benefits of the diversification that these portfolios offer.

At the same time, index tracking has also become an increasingly popular investment choice. Advisors and investors have been attracted to their simplicity and lower cost.

With these two trends coinciding, it is only natural that passive multi-asset funds would become a feature of the South African market. Nedgroup Investments was a pioneer in this field when it launched the first balanced index tracking unit trusts in September 2009.

The Nedgroup Investments Core Diversified Fund and the Nedgroup Investments Core Guarded Fund have both been extremely successful and even after many other competitors have brought out their own offerings, these have remained the market standard-bearers.

Nedgroup Investments has not, however, been satisfied to leave things there. It has continued to innovate and earlier this year added a third South African passive balanced offering to its range – the Nedgroup Investments Core Accelerated Fund, which sits in the multi-asset high-equity category.

The reason for adding this new portfolio is that while the Core Diversified Fund is also a high-equity option, its allocation to growth assets is well below the limits imposed by Regulation 28 of the Pension Funds Act. It has a total equity exposure of 67.5% and a combined equity and listed property exposure of 74.5%.

Jannie Leach, the head of Core Investments at Nedgroup Investments, argues that this might be fine for someone a decade or so from retirement, but is too conservative for a young investor who has a 30 or 40 year time horizon.

“Typically, balanced funds are not aggressive enough for early life stage investors,” says Leach. “Up until about 10 years to retirement you can have 90% to 100% in growth assets.”

Most balanced funds do not use their full offshore allowance of 25% either.

The Nedgroup Investments Core Accelerated Fund therefore does what no other passive offering has attempted, which is to run a portfolio very close to the allowed maximums imposed by Regulation 28. As the table below indicates, its combined equity and listed property exposure sits at 90%.

Source: Nedgroup Investments

This makes it significantly more aggressive than the Core Diversified Fund, and, Leach argues, more suitable for younger investors.

“Particularly because in most cases you will be contributing monthly, so it won’t be a massive lump sum that can experience a draw down,” he says. “Over time, you will get the benefit of rand cost averaging. And when you do get to the point where you have built up a substantial amount of capital you can then progress to lower-risk funds.”

While the fund has maximised its offshore and equity exposure, the weighting given to listed property is still well below the 25% limit. Leach explains that this is due to the nature of the local listed property market.

“The property sector on the JSE is still very concentrated,” he says. “To get to the full 25% you would effectively need 20% in local property, and that would mean that the largest holdings in the portfolio would be listed property companies. From an overall diversification perspective that’s not ideal, as you would be taking massive bets in the real estate space.”

Leach believes that the fund is ideal for investors in retirement annuities or preservation funds. There has also been demand from institutional investors who are looking to build proper life stage solutions within retirement funds.

The Core Accelerated Fund has a target return of inflation plus 6%. This is similar to what an investor could expect in a pure equity fund, but the diversified nature of the portfolio means that it should be able to deliver this return with less risk and lower volatility.

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Zah Mthethwa

Zah Mthethwa

Masthead Financial Planning
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interesting comment on vanguard explosive growth – attracted 8.5 times as much money as the rest of the 4,000-firm mutual fund industry” -https://www.nytimes.com/2017/04/14/business/mutfund/vanguard-mutual-index-funds-growth.html?_r=0

This reads like a Nedbank advert. I actually checked half way through that it wasn’t a sponsored article. No article on RAs or passive funds is complete without going into the fees. No mention of that though? Surely if it’s an index tracking fund it should be very competitive in fees and that would be one of the main attractions? Or is it a rip of so the whole topic is ignored?

Hi Chopchop

The fees are the same as the Core Guarded and Core Diversified Funds, ie 0.35% (excluding VAT) for investing directly with Nedgroup. The current Total Investments Charges (includes all underlying costs such as offshore exposure and brokerage)of the Core Diversified fund is 0.60%. We would expect Core Accelerated to have a similar TIC over time when it reaches the same size as the other two funds.

Regards

Jannie

Hi Jannie,

Is the Foreign Equity and Property, as on the fact sheet versus what is stated in the article, lower because of the recent Rand strength and will be rebalanced at some stage?

Interesting product and good for not being underweight in property.

Can these funds be accessed directly through Nedgroup without paying advice fees?

Hi

@supersunbird

The Foreign Equity and property as at the end of March was mainly due to new flows which were in transition offshore hence were in foreign cash (Factsheet shows a snapshot of the portfolio on one particular day). The fund is currently close to its strategic benchmark weightings.

@Bylo Selhi

Yes, the Core Range can be accessed directly from Nedgroup Investments for Discretionary and Tax Free Investments. There are no platform fees on these vehicles. Our Retirement vehicles (RA’s, Preservation funds and Living annuities) are presently not available to the direct market.

Jannie

Agree with Chopchop. Proper journalism would give all the facts so that an informed decision can be made. A reporter simply reproduces the drivel supplied to them. Come on Moneyweb, raise the bar! Do journalism!

I’ve just checked the fund fact sheets and compared. Seems the low costs are legitimate. No reason to avoid this as a topic at all – I guess the focus is simply on the fact that the fund is a new kid on the block – and quite a cool one at that. Perhaps Moneyweb should follow up with a comparison of Passive funds and other cost saving options.

Indeed, there are 10X, Sygnia Skeleton 70, Satrix Balanced and the Nedbank Core funds… anyone else?

The problem with the Nedgroup core funds is that you have to pay an additional advice fee if you go through Nedgroup, or platform fees if you use a Lisp platform like Allan Gray to invest in these funds. It adds a minimum .57% pa to the cost.

I believe there is no additional fee if you invest directly in Nedgroup Core funds, either online or by downloading and returning the application form. I don’t think it’s available as a stand-alone retirement annuity, but it’s worth considering as a unit trust or tax-free investment. Of course 10X, Sygnia and Satrix offer competing products, so an in-depth comparison of their features and costs could make for interesting reading.

Take your money offshore and invest it there..out of the hands of Zuma and his cronies.
Also, offshore investment are only taxed on dollar profits not rand profits as is the case with local investments.
And what happens when Gigaba instructs local asset managers to bring back offshore assets?
Your diversification plan has just gone up in smoke!
Nedbank cannot guarantee that your money will be 25% offshore at all times. Read the small print.

Wait till they tell your pension fund to invest in some Zupta inspired deal, after the government pension fund is dry.

Well they will wipe out the crxp Managed Fund now under Truffle. Still crxp btw.

Nedbank broke the 1st rule of investing: do NOT lose money. Nedbank allowed the losses the re:cm incurred to be realised.

Do not invest with Nedbank Collective Investments.

A fund going down for years with no bottom in site but they still invested our new money their.

Only because you allowed them to…

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