By Luigi Marinus, Portfolio Manager at PPS Investments.
As you reach your retirement age, it can be an exciting and daunting task of determining the next steps to secure a comfortable retirement. Broadly speaking, you will be faced with making critical decisions, and you will have to consult your financial adviser and review your circumstances to determine your unique retirement financial needs and the best approach to meet those needs.
Making financial resolutions and planning ahead allows you to reap the benefits later. In combination with other long-term investment plans, investing in multi assets can optimise your investment strategy and generate long-term returns for you.
The PPS Conservative Fund of Funds is a multi-asset low equity unit trust which is managed according to Regulation 28 of the Pension Funds Act, and therefore is a suitable vehicle for retirement savings.
The aim of the PPS Conservative Fund of Funds is to achieve inflation +2% over rolling three-year periods. The fund is defensive in nature and suitable for investors with a low risk tolerance and medium-term investment horizon.
The fund has a combined maximum allowance of up to 40% exposure to domestic and global equities, and a maximum allowance of 25% to property. This means that there is a large exposure to fixed interest securities all the time, which reinforces the defensive nature of the fund. The maximum offshore exposure is up to 30%, with an additional allowance of 10% for investments in Africa.
Even though equity markets have more recently largely been range bound, the returns for the PPS Conservative Fund of Funds have been competitive relative to peers and achieved the inflation benchmark. Importantly for a defensive fund of this nature, the returns have been achieved at a level of volatility noticeably lower than the peers.
Estimated growth of R100 000 invested with all distributions reinvested (for illustrative purposes only). Source: PPS Investments
As the primary benchmark of the fund is inflation based, the allowance for the specialist building block component is 50 – 75% of the total fund. This allows for more emphasis on targeting inflation.
Over shorter time periods, tactical asset allocation is performed to take advantage of relative mispricing of the asset classes. A monthly house view meeting assesses each asset class based primarily on valuation, macroeconomic factors and momentum. The outcome of this meeting provides a rating for each asset class that relates to a maximum overweight, overweight, neutral, underweight or maximum underweight allocation.
The multi-asset component has a 25 – 50% allowance that is equally weighted between a certain number of multi-asset low managers. The number of managers is mainly dependent on the modelled interaction between these managers. The goal is to pair managers that differ enough to reduce the overall volatility, while still delivering a return greater than the peer group average over time.
The allocation between the specialist building block component and the multi-asset component is based on the likelihood of achieving the inflation benchmark. The more likely the various asset classes, and in particular equities, are to achieve an inflation-beating return, the greater the exposure to the specialist building block component is likely to be. The current 50% exposure to the specialist building block component talks to the headwinds facing equities and the low probability assigned to above-average returns from the asset class in the medium term.
Within the specialist component, the current view is that domestic equities has a neutral allocation. Local bonds, global equities and global properties are overweight, domestic property is underweight while global bonds are assigned a maximum underweight rating. Local cash does have a neutral rating, but generally acts as the balancing allocation. Even though a monthly meeting is held to deliberate on asset allocation, changes to the ratings are not done often.
While we have discussed some insights to empower you to make an informed financial decision, it is essential to consult your financial adviser for practical guidance before making any financial decisions that may affect your ability to reach your financial objectives.