Issue: December 2012 / February 2013


A key focus of National Treasury’s proposals to reform current retirement funding structures in South Africa is the move towards greater transparency, improved governance and lower cost. As a result, trustees should consider new investment approaches that combine a variety of investment strategies, including passive investing.

De Wet van der Spuy,
Divisional Director: Product, Liberty Corporate
International estimates indicate up to 60% of retirement funds use passive investments to gain exposure to their desired asset classes, and then utilize selected niche active fund managers to add value to the investment strategy.

This strategy has a number of advantages. Passive investments are considerably less costly to manage, and regularly provide better net growth after active manager fees. They require less trustee governance and need no specialist knowledge to continuously select the appropriate active managers. They remove the risk of single manager underperformance and offer effi cient building blocks for a sustainable long term investment strategy.

Evolution of investment strategies

The South African investment industry has seen a substantial evolution of retirement fund investment strategies and capabilities over the last 50 years, as depicted in the timeline below. Starting with Guaranteed funds in the 1960s and culminating with the arrival of passive investments, Liberty Corporate has tracked the evolution of fund design, and through our philosophy of ‘Intelligent Investing’ have sought out the best attributes of each to incorporate in our new Stable Growth Fund.

Ensuring stable growth

Learning from history, planning for the future and crafting practical solutions for the present is Liberty Corporate’s vision of Intelligent Investing. It is our framework for combining the best that previous generations of retirement investments had to offer with the benefi ts of modern asset management skills, investment banking capabilities, tactical asset allocation, smoothing and insurance balance sheet advantages.

These components have now been brought together to meet the needs of the retirement industry with the launch of the Liberty Stable Growth Fund, a unique product in its aspiration to bring together a best of breed approach through a combination of managers while simplifying investment decisions for trustees.

The Liberty Stable Growth Fund has a high growth underlying mandate to outperform infl ation over time, whilst addressing risk management and loss avoidance directly through specialized and high conviction tactical asset allocation and smoothing. The Fund is passively managed to reduce costs by investing in local and international indices including the ALSI Top 40, the ALBI and the MSCI World.

“Learning from history, planning for the future and crafting practical solutions for the present is Liberty Corporate’s vision of Intelligent Investing”

Research shows that strategic and tactical asset allocation decisions are the biggest determinant in the variability of a fund’s returns, not stock selection and choice of manager. It is estimated that that in excess of 80% of returns are generated by the asset class calls that a retirement fund makes, with the remainder allocated to the fund manager.

The Liberty Stable Growth Fund’s dynamic asset allocation methodology goes one step further in that the portfolio invests more aggressively when a minimum level of protection has been achieved, and exercises caution when the cost of this protection is high, ie when the market is signaling fear and increased risk.

What truly sets the Liberty Stable Growth Fund apart from traditional solutions however is its unique mandate structure and simplicity, offering full liquidity at the prevailing unit price, thus no market value adjustments. Stable Growth is an appropriate choice for trustees who seek a suitable solution for their entire membership, whether old or young, or whether looking for growth or market protection, the same members are well positioned to benefi t from both the risk and the return objectives.

Furthermore, the increasing levels of governance required of trustees means there is an onerous burden to understand and apply investment capabilities appropriately when selecting asset managers or making asset allocation calls. With one fl exible product that meets multiple needs, trustees no longer need to identify different components and conduct due diligence on a variety of investment products and managers.

With looming proposals from National Treasury to reform South Africa’s retirement industry by lowering costs, whilst increasing governance, transparency and ease of portability, Liberty’s Stable Growth Fund proves an innovative way to meet these changes head-on.

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