Stock-picking was the winning strategy for retirement funds in the last few years, it emerged from the latest survey of retirement fund performance from First Bowring Consulting & Actuarial Services.
The First Bowring Investment Performance survey for the period to September 30 shows the top performing retirement fund over the year to September, on a time-weighted basis, was TimeLife (Opportunity) now the M3 Capital Opportunity Fund a new entrant to the survey, with a 35,7 percent return.
Over both three- and five-year periods, BoE Investors' Fund was the top ranked retirement fund in the category of insurers, returning 28,4 percent over three years and 30,8 percent over five years.
Among investment houses, the top performer over one year was Capital Alliance, with 20,3 percent, but over the three-year period Standard Corporate and Merchant Bank was tops with 17,8 percent and over five years Fleming Martin led the field with 24,1 percent.
These figures are all based on a time-weighted calculation which smoothes out the effects of cash flows into and out of each fund to make the performance of the various asset managers comparable.
The figures will not reflect the experience of individual retirement fund clients because each client's performance is influenced by their cash inflows and outflows during the period.
The distinction between the two categories is that insurers manage retirement funds on a pooled basis and investment houses run segregated portfolios.
With insurers, retirement funds share in a portfolio of assets invested directly in different asset classes. Each retirement fund holds units in this portfolio.
Investment houses manage each retirement fund portfolio as a separate entity, where each retirement fund owns a combination of assets tailor-made to its own requirements. The performance of these various discrete retirement fund portfolios, which are only those where the fund managers have full discretion over investment decisions, are aggregated for the survey.
TimeLife, which has renamed itself M3 Capital, follows a multi-manager approach with its retirement funds, Anne Cabot-Alletzhauser, a director of M3 Capital, says.
The company has created a range of specialist portfolios with external managers who manage mandates created by M3 Capital. These fund managers are blended and actively managed on a monthly basis to maintain a specific risk/return objective over time.
The objective of the Opportunity Fund is to deliver the best performance with the least volatility. The managers of the Opportunity Fund at present include Prudential, Investec, Syfrets and BoE for equities, BoE for gilts, while cash management is undertaken by M3 Capital itself.
The Opportunity Fund benchmarks itself against a portfolio weighted 65 percent all-share index, 20 percent all-bond index and 15 percent cash. By consistently beating this benchmark it aims to achieve exceptional long-term performance, Cabot-Alletzhauser says.
Anet Ahern, who has managed the BoE Investors' Fund for the past few months, says its performance has been influenced by its success in stock selection as well as a solid weighting in gilts.
This success was as much in picking winning shares as in avoiding losing shares. So, for example, the fund held no direct gold shares, which did poorly in the past year.
Partly as a result of the good performance figures, and also a marketing drive on the part of BoE to sell this fund to smaller pension funds, the size of BoE Investors has grown to R1,7 billion from about R200 million a year ago.
Ahern doubts if size will affect the performance of the fund but says more difficult market conditions foreseen in the future are likely to make it harder to repeat the high returns of the past.
BoE Investors is still looking for good companies that will outpace the rest of the market but is not turning towards the traditional blue chips.
"We think many of those companies have had to adapt to a changing environment and have not succeeded well enough," Ahern says.
Sello Moloko, deputy chief executive officer at Capital Alliance Asset Managers, says the team's strength in the past year has been stock-picking. Its asset allocation was not out of line with that of its competitors' but it was particularly successful in two asset classes, equities and property.
The First Bowring survey shows Capital Alliance had 64 percent in equities, five percent in property, 14 percent in fixed interest and 17 percent in cash at the end of September this year, and no foreign exposure.
Within the equities sector, Moloko says smaller companies performed well, as did stores, financial and insurance shares.
The retirement fund held no gold shares but it had some platinum holdings at the end of September. In general, though, the managers are negative about commodities because they believe the commodities cycle has peaked.
Funds have flowed into Capital Alliance Asset Managers in the past year as a result of its successful performance.
Moloko says the firms that gave Capital Alliance Asset Managers a portion of their retirement funds to manage have increased that portion.