Investment Strategy

This section covers:

• The investment Philosophy of the Fund
• The investment Objective
• The investment strategy and structure

The Fund is a Defined Contribution fund (following changes made with effect from 1 March 2016). The investment performance of a Defined Contribution arrangement, whether good or bad, has a direct effect on the amount of benefits that you will receive from the Fund. The investment strategy chosen by the Trustees for the Defined Contribution component of the Fund is therefore an important matter for Fund members to be aware of. The Fund’s investment strategy is detailed in its Investment Policy Statement.

The Fund’s investment strategy was reviewed by the Trustees during 2022, and some changes were made. This section describes the current strategy including the changes made in 2022.

INVESTMENT PHILOSOPHY

• The Trustees have adopted a medium-term time horizon in formulating the Fund’s investment strategy. This means that the overall success of the strategy will be measured over periods of at least 5 years, which corresponds to the expected length of members’ terms of office from one Election to the next.
• The Fund’s investments should be managed in a manner that is honest, transparent and ethical. Where consistent with the Fund’s philosophy and objectives, a portion of the Fund’s assets should be invested in socially-responsible investment portfolios.
• The Fund is also required to comply with Regulation 28 to the Pension Funds Act. This Regulation sets out certain principles which Trustees must apply in respect of the Fund’s investments, as well as so-called “prudential investment limits” that the Fund must comply with.

INVESTMENT OBJECTIVES

Recognising the need to protect members against both short-term fluctuations (volatility) on the investment markets and long-term inflation risk, the Trustees have agreed on the following overall investment objectives for the Fund:

• To provide reasonably competitive market-related returns to members, with exposure to the asset classes normally considered for investment by South African pension funds (including the domestic and international equity and bond markets)
• To provide a higher than normal degree of protection against the fluctuations of the equity markets by favouring an asset allocation that has significantly lower exposure to equities than the typical SA retirement fund
• To maintain sufficient flexibility to vary the investment policy (for example by moving to a member-choice structure) without undue restrictions.

The Fund’s performance objective is to deliver to members a net investment return that exceeds inflation by at least 4% per year, measured over any 7-year period.  Note that achieving this objective is not easy, and there is no certainty that the Fund will be able to achieve it over any specific 7-year period.

INVESTMENT STRATEGY AND STRUCTURE

The investment structure was changed in November 2011, at which time the Fund moved away from so-called “balanced” investment mandates (the approach first adopted by the Fund in 1999, in which each of the Fund’s investment managers managed a portfolio containing a mixture of shares, bonds and money-market investments), to a “specialist” approach. Under the “specialist” approach, the Trustees chose investment managers specifically for the different asset classes (such as shares, bonds and property investments). Appointing managers who specialize in particular asset classes makes it easier for the Trustees to monitor the performance of the managers and hold them to account.

Further changes have been made over time to the Fund’s strategic asset allocation and to the line-up of investment managers and investment products used by the Fund.

The current investment structure of the assets backing the members' retirement savings is as follows:

• The Fund aims to invest some 15% in SA Equities (shares) – this section of the Fund is split among three managers, namely Oasis, Camissa and Old Mutual. The first two of these are actively-managed portfolios, while the Old Mutual portfolio tracks the All-Share Index.
• The Fund also aims to invest some 4.5% in SA infrastructure, via an investment in Old Mutual's IDEAS pooled infrastructure fund.  The first investment into the IDEAS Fund was made in late 2022 - further amounts will be invested over time to bring the total up towards the 4.5% target weight.
• Some 38% will typically be invested in SA interest-bearing investments (bonds and money-market instruments). This section of the Fund is split among four investment firms, namely Prowess, Coronation, Futuregrowth, and 27four. The allocation to 27four is invested in the 27four Emerging Manager Bond Fund – 27four have chosen two smaller Black investment firms as the underlying managers for their Bond Fund. The Futuregrowth portfolio is invested in their Infrastructure and Development Bond Fund, which has a social-responsibility focus. The Coronation portfolio is benchmarked against a blend of nominal and inflation-linked bond indices while the Futuregrowth and 27four portfolios are benchmarked against the All-Bond Index of (only) nominal bonds.  The Prowess portfolio is invested in money-market instruments.
• Some 7.5% will typically be invested in SA property investments. This section of the Fund is partly invested in Futuregrowth’s Community Property Fund, which owns shopping centres in disadvantaged communities, with the balance being invested in an actively-managed listed property portfolio managed by Sesfikile.
• The remaining 35% is invested outside South Africa in a blend of global equities (shares) and bonds. This section of the Fund is partly invested in the Orbis Global Equity Fund, and partly in a multi-class Global Balanced fund managed by Ninety One (formerly Investec Asset Management).

However, the Trustees have agreed to build up a "liquidity reserve" (cash buffer), on a phased basis, but targeted to reach some R 1 billion by the time of the 2024 Election (some 30% of the total assets backing the members' savings) - this is to ensure that the Fund has enough liquid investments to pay benefits in the weeks and months following the Election.  The liquidity reserve will be funded by disinvestments from both the local and foreign manager portfolios.

The investment returns, after allowing for fees and expenses, are calculated each month by the Fund’s investment consultants. These returns (positive or negative) are then credited to the members’ Fund Credits – please refer to the section of this member guide dealing with Benefits, to understand this better. Currently there is a single pool of investments backing all the members' retirement savings – i.e. the Fund does not provide investment choice for members.