Edition: March - May 2015

Investment growth and capital

Both objectives can be achieved, even in volatile markets. Andrew Kemp,
head of investment product solutions at Liberty Corporate, explains how.

Over the past few months, SA investors have seen some noticeable volatility in returns for our local share market, the local fixed-interest market and even in terms of their foreign assets. In this exceptionally unpredictable market, clients continue to ask: “How do I protect and grow my retirement savings?” 

The Liberty Stable Growth Fund has allowed us to provide above-inflation returns targeted at providing sufficient post-retirement income while protecting against the risks of large drops in the markets and volatility of returns.

The fund offers:
A target return of CPI+ 5% per annum, gross of fees.

Although individual circumstances vary considerably, aiming for an annual retirement income which is a high percentage of preretirement income is considered essential in order to sustain investors throughout their retirement years.

Achieving this post-retirement income level depends on the amount saved, on the length of the savings period, and on the level of investment return (net of expenses) achieved on these savings.

Assuming a reasonable regular savings amount, a consistent return of around CPI +5% per annum is expected to be sufficient to achieve this targeted post-retirement income. Stable Growth was up 14.28% as at 31 Dec 2014 versus a benchmark of 10.99%. Therefore the fund is on track to ensure that investors achieve sufficient pre-retirement income.


Protection against large drops in the market.

We regard capital preservation as an extremely important element of the portfolio as it allows us to protect our customers against large dropsin investment markets at inopportune times; for example, prior to retirement or on resignation from employment.

Kemp Kemp...virtues of smoothing


The fund has a built in protection, progressively locking in the gains as the market rises, hence protecting against subsequent market falls. The strategy aims to ensure that customers won’t lose more than 10% from the highest previouslyattained cumulative return.

However, this strategy means that investors in the fund need to give up a small part of the market gains they may have earned in order to protect against a future fall in the markets. (See graph).

Reducing return volatility through smoothing.

We smooth the returns using transparent formulae in order to reduce the volatility of returns. This ensures that the returns in the portfolio do not swing as wildly as the underlying market but instead increase steadily. Smoothing provides our investors with peace of mind as it ensures a certain level of predictability in returns -- which is very important for retirement planning.

This strategy also means that the fund may experience a lag in performance as any large upswings in the market will be declared over a few months. Smoothing also allows Stable Growth to declare positive returns to its investors even when the markets are down.

As many of the concerns which led to volatile markets last year continue into 2015, we feel Stable Growth is the right strategy to provide investors with smoothed returns and capital protection.

For further information, speak to one of our fund consultants or contact the Liberty Corporate contact centre at 011 408 2999 or www.libertycorporate.co.za.

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