Old Mutual’s Smoothed Funds declare highest bonus

The company declared a total bonus of 17.5% for retirement savings and 16% for non-retirement savings (net of investment fund charges and tax) on its range of retail Smoothed Funds for the higher income market; and a total bonus of 12.5% on retirement savings and 11% on non-retirement savings for the lower income market. The Smoothed Fund for the low income market has slightly less exposure to equities than other retail Smoothed Funds.

"Since 1973 Old Mutual's Smoothed Funds have seen exceptional performance without a single year of negative bonuses," says Sinenhlanhla Nzama, Product Marketing Manager at Old Mutual

Nzama adds that these good bonuses demonstrate how Old Mutual's customers enjoy the good returns when markets perform well, but are well protected when the markets fall sharply. "Evidently we are allowing our customers to maintain the long-term view on their investments and not worry about the short-term noise in the market"

"Domestic economic growth slowed sharply from the middle of last year, with the rand weakening. This forced the SA Reserve Bank to hike the repo rate to 5.5% in January this year. However, a silver lining is that a weak rand is expected to help boost the export competitiveness of local firms. It has also helped offshore investments do very well over the past three years.Based on the ASISA funds classification, 2013 was a decent year for average balanced funds in South Africa, with total return on the average low equity funds at 12.2% and the average medium equity fund at 15.8%"

In essence, Smoothed Funds are balanced funds aiming to outperform inflation over a long term (10 years and longer). Customers benefit from the performances of a diverse range of local and offshore assets, while removing the short-term volatility associated with such investments.

"A Smoothed Fund earns returns on the underlying assets and then declares annual bonuses to pass the returns to customers" says Nzama. "These bonuses are smoothed over time, which means they are not as volatile as the actual market returns. In a smoothed fund, the manager holds back some of the investment growth during times of strong market performance and allocates additional growth during times of poor market performance, thus smoothing out the short-term ups and downs of the market. For customers, this means more peace of mind when it comes to their investments."

Anele Mbuya, Senior Marketing Actuary at Old Mutual, adds that this is the 40th consecutive year that the Smoothed Funds have seen positive declarations. This means positive returns for customers since the day the business launched smooth bonus funds. "We achieved high returns on our South African equity investments last year and because of the depreciation of the rand, we also achieved high returns from our foreign investments."

"Smooth bonus funds are a good choice for many individuals and corporates, especially if they do not want to see their investment experience sharp ups and downs as markets change. Generally these customers would consider putting their money in low-risk assets (such as money markets or leave it in a bank savings account), which means they do not get the better growth that comes with assets like shares and property."

Of course, it's not only about the last year - investing is a long-term commitment. Smoothed Bonus Funds are a good long-term investment option for investors saving for retirement. The Smoothed Bonus Funds have outperformed average inflation by about 6% over the past 10 years. All of this while enjoying a substantially less bumpy ride.

"A smoothed fund is a good option when safeguarding your retirement nest egg. If you reach retirement age after a severe downturn in the markets, a smoothed fund investment offers you a level of protection and some level of guarantees not available in market-linked funds" concludes Nzama.