Confidence to stay invested - smoothing the client investment experience
David Itzkovits, Head of Investments, Sanlam Global Investment Solutions.
It is widely accepted that one of the best ways to ensure people have enough saved over the long-term is to invest in the stock market. Yet the stock market experience is not always positive. Markets are unpredictable with their ups and downs, and getting in or out at the wrong time can significantly affect the value of an investor’s portfolio.
During the 2008 financial crisis, investors saw tremendous declines in the values of their portfolios. Diversification, which traditionally had been a solid risk management strategy, proved to be flawed as most asset classes declined at the same time. Although markets have risen considerably since the bottom, uncertainty and volatility remain.
The Sanlam Managed Risk Funds (SMRFunds) are an investment solution that helps manage the risk of investing in equities. It is designed to smooth a client’s investment experience, giving them the confidence to stay invested over the long-term.
How do the Sanlam Managed Risk Funds work?
To achieve a smoother investment experience, equity exposure (for growth) is combined with a risk management strategy designed to reduce volatility and minimise losses in declining markets.
Each Fund in the solution line up consists of two elements:
- An equity tracker fund (i.e. a fund which tracks an index, such as the ASX 200)
- The SMRaccount
The SMRaccount works by investing in assets that are designed to move in the opposite direction to the equity markets (ie short futures positions in an equity index). When markets fall, equity values decline and the value of the short futures positions increases, offsetting some of the equity losses.
What is the intended behaviour of the SMRFunds?
In a rising market
The SMRFunds will rise, albeit not to the same degree as the markets, given that a minimum percentage of the investment must be held in the SMRaccount at all times. The result is that during a rising market, investors are not fully invested in equities and the investment return will be less than having been fully invested. Yet investors still get to participate when markets rise.
In a falling market
The SMRFunds will most likely outperform from a return perspective. As the client’s investment held in the SMRaccount increases, they are cushioned against the market decline. The overall value of their investment is likely to fall, but not by as much as would have been the case without the cushioning effect of the SMRaccount.
In summary
While both lines in this example would have yielded similar results, the SMRFunds investment experience would have been smoother.
Sanlam
Sanlam is a leading financial services group. Headquartered near Cape Town in South Africa, Sanlam has offices throughout the country and business interests elsewhere in Africa, Europe, India, USA and Australia. Sanlam provides financial solutions to individual and institutional clients.
To read the full article on smoothing the client investment experience, please click here.
For more about Sanlam Managed Risk Funds, visit http://www3.colonialfirststate.com.au/adviser/investments/funds/Managed_Risk_Strategies.html
AUTHOR
Partner Article
Recommended for you
The growing use of drones is transforming warfare
Innovation isn’t just a buzzword; it’s the lifeblood of growth, competitiveness, and sustainability across industries.
As bank issuance shrinks, corporate hybrids are in the ascendent, with non-financial corporate hybrids potentially instrumental in powering Australia’s energy transition. So what do they offer the fixed income investor?
After taking a healthy breather over Q3 2024, the nuclear theme is rising once again as a top performer.
