The Core range of funds: a fund for each stage of retirement planning
The Nedgroup Investments Core Diversified and Nedgroup Investments Core Guarded funds are now in their eighth year of existence and over this period both funds have built up solid track records. Their low cost structure and broad diversification across five domestic and five offshore asset classes (equity, property, bonds, inflation-linkers and cash) have resulted in placing them among the top performing balanced funds on a risk-adjusted basis.
Like many of their active peers, these two funds were designed for pre- and post-retirement savings (pension funds, retirement annuities, preservation funds and living annuities). However, they could also be used for discretionary savings over appropriate time frames.
From a retirement planning perspective they are suitable for the later stages of your financial life, from around 10 to 15 years before retirement and into retirement (compounding phase and retirement).
On the 28 February 2017, we launched a new fund - the Nedgroup Investments Core Accelerated Fund that has been designed specifically for the earlier stages of your financial life as you lay the foundations for retirement.
An effective retirement plan should include exposure to growth assets in your younger years
In a previous article we showed that for the earlier phases in your career (foundation and building phases) you can actually hold more equity and listed property exposure than is offered by a traditional balanced fund. In the two graphs below, we show the historical allocation ranges to risk assets (equity and listed property) in the eighth largest stand-alone balanced fund available in South Africa.
The combined equity and listed property allocation for most of these funds ranged between 55% and 75% of the respective funds - with an average weighting of around 65%. The property allocation within these funds typically ranged between 2% and 7% with an average weighting of under 4%. If we compare these weightings to the maximum limits allowed by Regulation 28 of the Pension Funds Act - which are 75% for equities and 25% for listed property (combined 100% to risk assets) – we can clearly see that that all of the large balanced funds are too conservatively positioned for younger investors.
The Nedgroup Investments Core Accelerated Fund is ideal for retirement savings
The new Nedgroup Investments Core Accelerated Fund aims to fulfil the need for a Regulation 28 compliant fund that offers a higher allocation to equities and listed property (around 90% of the fund), compared to traditional balanced funds. The fund targets a return of inflation + 6% after fees over a rolling 7 year basis and offers exposure to the same asset classes as the Nedgroup Investments Core Diversified and Nedgroup Investments Core Guarded funds.
The Nedgroup Investments Core Accelerated Fund will utilise the full equity allocation as allowed by Regulation 28 and allocate at least 15% to listed property. The remainder of the fund is diversified across the various fixed income asset classes to offer downside protection during market corrections.
The table below compares the strategic asset allocations of the three South African Core funds.
In line with the investment philosophy of the Nedgroup Investments Core Diversified Fund and the Nedgroup Investments Core Guarded Fund, the Nedgroup Investments Core Accelerated Fund has been designed to maximise the probability of achieving its objective of inflation plus benchmark over an appropriate time frame.
The table below summarises the results for the three Core funds with their respective return objectives and time frames. The funds are able to meet their objectives around two thirds of all the relevant rolling periods (as highlighted in the green blocks). Even when they don’t achieve their stated objectives, normally following a severe market correction, they are able to produce inflation beating returns in more than 85% of these rolling periods.
They have also been able to produce positive returns over the appropriate timeframes under nearly all market conditions.
Successful rolling periods (after total investment cost of 0.5% p.a.) of three funds targeting different inflation benchmarks over appropriate rolling periods (Based on historical returns from 1960-2016):
The Nedgroup Investments Core Accelerated Fund is therefore ideally suited for retirement savings up until at least 10 to 15 years before retirement as it offers a higher allocation to risk asset compared to traditional balanced funds.
For discretionary investments it is also a good alternative to a general equity fund as it holds nearly the same amount of risk assets, however diversification across local and global asset classes should reduce exposure to risk and volatility relative to a general equity fund.
For more information about this new fund, or any of the Nedgroup Investments Core rage of funds, please visit our website at www.nedgroupinvestments.com
 A tax-efficient strategy to enhance your savings during your career, Q1 2017
 Managing your human capital through your career, Q3 2016