THE OLD MUTUAL NUCLEUS INDEX LIFE FUND RANGE

Transcription

1 THE OLD MUTUAL NUCLEUS INDEX LIFE FUND RANGE FOR MEMBERS OF OLD MUTUAL SUPERFUND CHOICE

2 INTRODUCING OLD MUTUAL NUCLEUS INDEX LIFE FUNDS Old Mutual Nucleus Index Life Funds are a range of simple, yet effective index tracker investment funds. From the 1st of October 2017, the Old Mutual Nucleus Index Life Funds replaced the previous range of Old Mutual index tracker investments. The funds available in this offering are: Old Mutual Nucleus Balanced Index Life Fund Old Mutual Nucleus Moderate Index Life Fund Old Mutual Nucleus Conservative Index Life Fund These funds are now available to all Old Mutual SuperFund Choice participating employers and members via the Index Tracker Lifestage solution as well as the Strategy and Extended packages. All three funds comply with Regulation 28 making them suitable for retirement investments. ABOUT INDEX TRACKER FUNDS AND THEIR BENEFITS Index tracker funds aim to provide investors with returns that track the performance of a chosen index or combination of indices. These funds offer a number of benefits for investors, most notably the following: They are a low cost way to get exposure to the investment markets; They offer investors the peace of mind that their investment will not underperform a specific benchmark (the index); and They offer investors a good way to diversify their portfolio because they invest in all the stocks that make up the index they track. An additional benefit of the Old Mutual Nucleus Index Life Funds is that they are fully linked to the indices they track, which means they have zero tracking error*. The funds are structured to offer investors varying levels of exposure to various indices and are ideal for investors with a medium to long-term investment horizon. * Tracking error is the difference between the performance of the index tracker fund and the performance of the index it tracks. Old Mutual Nucleus Index Life Funds are managed to ensure there is no tracking error before fees. 1

3 HOW THE OLD MUTUAL SUPERFUND INVESTMENT OFFERINGS HAVE CHANGED Old Mutual SuperFund previously offered two index tracker investment options in the form of the Old Mutual Balanced Index Fund and the Old Mutual Conservative Index Fund. These were available via the Lifestage solution and Strategy and Extended investment packages. Both of these have now been replaced by the Old Mutual Nucleus Index Life Funds, and a third index tracker option has been added in the form of the Old Mutual Nucleus Moderate Index Life Fund. The changes are shown in the table below: EXISTING FUND Old Mutual Balanced Fund No fund currently Old Mutual Conservative Fund REPLACEMENT NUCLEUS INDEX LIFE FUND Old Mutual Nucleus Balanced Index Life Fund Old Mutual Nucleus Moderate Index Life Fund Old Mutual Nucleus Conservative Index Life Fund MORE DETAILS ABOUT THE OLD MUTUAL NUCLEUS INDEX LIFE FUNDS: ASSET CLASS EXPOSURE The range offers a full suite of risk profiled solutions with asset exposures to suit the risk and return requirements of most investors. The asset class allocation of each of the funds takes into account: the requirements of Regulation 28, and the risk categories set out by the Association for Savings and Investment South Africa (ASISA). The funds also give investors access to both local and offshore asset classes. The weightings given to each asset class by the three funds are shown in the table below: 100% 80% 5% 10% 25% 60% 35% 40% 15% 55% 45% 30% 0% Balanced Moderate Conservative Local Equities Foreign Equities Fixed Interest Cash 2

4 Each of the asset classes within the funds track a specific index. This means that the performance benchmark for each fund is set as the weighted combination of all the asset classes tracked by that fund. So, for example, if a SuperFund member invested R100 in the Old Mutual Nucleus Balanced Fund, that investment would be split up across the asset classes tracked by the fund in the weightings shown above. In other words: R55 in the local equity portion R20 in foreign equities R20 in fixed interest R5 in cash Let s assume that in the year following the investment, the local equities portion of the fund delivers 10% return. This would mean the R55 invested in local equities will have grown by 10%, which would mean it now has a value of R The same process is applied to the amounts invested in all the other asset classes and the overall performance for the year is the combined performance of all these assets in line with the weighting given to them by the fund before the investment management fee. CHOOSING THE INDICES The table below shows the indices that are tracked in each asset class. Local Equities Foreign Equities Fixed Interest Cash ASSET CLASS INDEX FTSE/JSE Capped SWIX Top 40 Index MSCI World Index BEASSA GOVI Index 3-month STeFI Index These indices were chosen from a spectrum of benchmarks usually applied to active funds. These include likely future trends, the ease with which those indices could be tracked in the fund, and the costs involved in tracking the indices. ACHIEVING ZERO TRACKING ERROR While index funds are designed to track the performance of an index, there can sometimes be a slight difference in performance between the index and the fund. This difference is called tracking error and the closer it is to zero the better the fund is achieving its objective of tracking the indices. To protect investors and precisely meet their expectations, Old Mutual guarantees that the performance of the Old Mutual Nucleus Index Life Funds will be linked exactly to the combined performance of the indices they track. This means that there is zero tracking error before investment management fees. REBALANCING Market movements can have an impact on the stocks in an index. This means that the underlying portfolio of an index tracker fund needs to be rebalanced regularly to ensure it mirrors the index it is tracking. The Old Mutual Nucleus Index Life Funds are constructed to match the index exactly as would be the case if rebalancing was done daily. 3

5 EXPECTED PERFORMANCE Thanks to zero tracking error, investors in the Old Mutual Nucleus Index Life Funds get returns that are identical to the composite benchmarks of each fund in all market conditions. The different asset exposure of the funds means that each one has different growth potential over time. The table below shows the growth that Old Mutual is expecting for the funds based on their asset allocations, gross of fees. BROAD CATEGORY FUNDS GROWTH TARGET Lower Reward Lower Volatility Old Mutual Nucleus Conservative Index Life Fund CPI + 3.5% Medium Reward Medium Volatility Old Mutual Nucleus Moderate Index Life Fund CPI + 4.5% Higher Reward Higher Volatility Old Mutual Nucleus Balanced Index Life Fund > CPI + 5% Note: These returns are expected, but not guaranteed. The actual performance of the funds is fully dependent on the performance of the markets and, specifically, the indices the funds track. MANAGING RISK As the funds are index trackers, the funds follow the performance of the indices they track. Risk in the Old Mutual Nucleus Index Life Funds is therefore managed purely through the amount of diversification across different asset classes that each fund offers. There are no guarantees on the initial capital invested or on any growth of that capital that is achieved over time. COSTS The table below compares the costs of the previous Old Mutual index funds and the Nucleus Index Life Funds: EXISTING FUND FEES P.A. REPLACEMENT NUCLEUS INDEX LIFE FUND FEES P.A. Old Mutual Balanced Fund 0.30% Old Mutual Nucleus Balanced Index Life Fund 0.30% No fund currently Old Mutual Nucleus Moderate Index Life Fund 0.30% Old Mutual Conservative Fund 0.30% Old Mutual Nucleus Conservative Index Life Fund 0.30% There are no transactional costs which are passed on to the investors. Investors simply pay a flat fee of 0.30% p.a. for each Old Mutual Nucleus Index Life Fund they invest in. GIVING INVESTORS THE BEST OF BOTH WORLDS To achieve the necessary portfolio rebalancing in an index tracker fund, stocks have to be bought and sold. In other index tracking funds, this usually results in trading costs that can reduce the overall value for investors over time. Managers try to keep these costs low by rebalancing less often. But this can mean that their index tracker fund does not always exactly mirror the index it is tracking, which leads to tracking error. 4

6 Old Mutual Nucleus Index Life Funds are managed to exactly replicate the indices they track, so there is no tracking error. What is more, investors are not charged any transactions costs required to achieve this zero tracking error meaning that when you invest in Old Mutual Nucleus Index Life Funds, you really do get the best of both worlds. CONTACT INFORMATION For more information around the Old Mutual Nucleus range visit our website at or contact your Old Mutual Corporate Consultant. INTERMEDIARY CONSULTANTS DIRECT CLIENT CONSULTANTS Johannesburg / / /1259 Pretoria Western Cape / /9608 KwaZulu-Natal / /0705 Eastern Cape / /6304 Bloemfontein OMBDS L REGULATORY INFORMATION. Old Mutual Corporate is a division of Old Mutual Life Assurance Company (South Africa) Limited, Licensed Financial Services Provider. Jan Smuts Drive, Pinelands 7405, South Africa. Company registration no: 1999/004643/06. The information contained in this document is provided as general information and does not constitute advice or an offer by Old Mutual. Every effort has been made to ensure the provision of information regarding these financial products meets the statutory and regulatory requirements. However, should you become aware of any breach of such statutory and regulatory requirements, please address the matter in writing to: The Compliance Officer, Old Mutual Corporate, PO Box 1014, Cape Town 8000, South Africa.