IconAssociations & Institutes
IconBBBEE Consulting and Verification Agencies
IconBenefit Administrators & Investment Managers
IconBusiness Chambers
IconBusiness Process Management
IconBusiness Process Outsourcing
IconConsumer Protection
IconCorporate Governance
IconCredit Bureaus
IconDebit Order Collection Facilities
IconEducation and Training
IconHuman Resources
IconInformation Technology and Software Partners
IconPension Fund Adjudicator
IconPension Fund Trustee Liability Insurance
IconPension Fund Trustee Training
IconPolicy Administration
IconPolicy Trading
IconRegulatory Authorities
IconRetirement Funds registered by the FSB
IconRetirement Products
IconSocial Grants (Government)
IconSurveys and Research
IconTraining Courses & Workshops
IconTrust Establishment & Management
IconWellness Programs
  Subscribe To »

How to protect capital and beat inflation






Use absolute return investment strategies to navigate the current climate of increased volatility and risk
By Natasha Narsingh, head of Absolute Returns at Sanlam Investments
Cape Town: Retirement fund trustees have to meet challenging goals— above all, achieve the highest possible rate of return for their members while limiting downside risk and volatility of returns. Yet in the current climate of increased volatility and lowered return expectations, reaching that objective has become increasingly difficult. So how do institutional investors meet the return objectives of their members without exposing them to substantial risk of short-term capital losses?
Natasha Narsingh, head of Absolute Returns at Sanlam Investments says: “In the current environment where capital protection is a key priority, many trustees have begun to accept that they must be willing to re-examine their investment strategies and investigate more tactical ways to achieve their investment goals”. An increasingly popular investment strategy is the absolute return strategy.
Explains Narsingh, in absolute returns, we have two very distinct and specific goals that we aim to achieve for our clients, one being capital protection over a rolling 12 month period and the other being the delivery of an explicit real return target over a typically 3 to 5 year period. This is fundamentally different from the usual benchmark-cognisant type funds that are measured relative to a particular index or even versus the funds that use peer groups as benchmarks. In our absolute return space, we have an explicit return hurdle over and above inflation that needs to be met.
Here the essence is to achieve inflation-beating returns at minimal levels of volatility. High priority is given to minimising capital losses, so the idea is to have both a capital protection and real return mindset. Absolute return strategies also generate what is called an asymmetric return profile, ie, higher and more positive returns, lower and fewer negative returns. The key to this is a dynamic risk-management process that limits the probability of large portfolio losses.
How we protect capital for our clients
Although we draw on several tools in our investment toolkit, essentially this is a conservative application of our pragmatic value philosophy, together with the use of protective strategies or derivatives, explains Narsingh.
At Sanlam Investments, we look at relative valuations across all of the asset classes to support our dynamic asset allocation decisions. Our bottom-up driven equity valuations in particular are key to determining the parameters of the protective structures we put in place. To ensure maximum certainty in outcomes, we use these fundamental equity valuations to aid the levels and the magnitude of the derivative overlays in achieving explicit downside protection for our funds. This combination of derivatives with a fundamental valuation underpin acts as a protective structure (or hedge) against equity market falls, aiming to achieve the highest possible rate of return (per unit of risk taken), while minimising the risk of capital losses, over a rolling 12-month basis.
We operate dynamically across all asset classes, both local and offshore, including equities, nominal bonds, inflation-linked bonds, cash and listed property to adapt to relative market valuations.
Asymmetric returns are also extremely useful from a behavioural finance point of view, concludes Narsingh. They limit the likelihood of irrational investor behaviour by creating a smoother return experience. Investors feel the pain of loss twice as much as the joy of gains, triggering reactions (like fear) which may lead to poor investment decisions.
Source: Atmosphere Communications
« Back to previous page Print this page » |

Breaking News »

The next big thing

Investment in infrastructure is ideal for pension funds. Over the next 15 years, Gauteng alone is looking for R1,8 trillion. It would have to be found in partnerships with the private sector. Good governance and ...
Read More »


Triple vote of confidence in Sanlam Umbrella Fund

Cape Town: The Institute of Retirement Funds Africa (IRFA) has awarded the Sanlam Umbrella Fund the Best in Class Trophy for Investment Practice, the Best in Class Trophy for Governance, the Gold Standard Certificate ...
Read More »


Too many eggs in one basket?

“Catch-22 is any paradoxical, circular reasoning that catches its victim in its illogic and serves those who have made the law. ” One of the options in the Merriam-Webster dictionary reads: “A ...
Read More »


Collaboration is the best way to combat fraud

Speakers concur that collaboration is the best way to combat fraud at the SAFPS and ICB Inaugural International Fraud Conference “It’s a Bring and Braai,” said Manie van Schalkwyk head of ...
Read More »


More News »


Healthcare »


Investment »


Life »


Short-term »

Advertise Here
Advertise Here

From The Glossary »


Unit Trust:

Unit trusts consist of underlying securities which have been apportioned to unitholders in a trust fund. The underlying securities are managed by a unit trust management company on behalf of all the investors who share ownership of the pool of assets (the fund). The pool of assets can consist of listed shares, listed interest-bearing stocks and cash. Most unit trusts are open-ended trusts where the number of units fluctuates depending on the demand ...
More Definitions »

By using this website you agree to the Terms of Use.
Copyright © Stoker Risk & ICT (Pty) Ltd 2004 - 2017.
All Rights Reserved.





Contact IG


Media Pack


RSS Feeds