OLD MUTUAL SUPERFUND CHOICE/PRESERVER INVESTMENT GUIDE A USEFUL INVESTMENT GUIDE TO HELP YOU MAKE THE RIGHT INVESTMENT DECISIONS

Transcription

1 OLD MUTUAL SUPERFUND CHOICE/PRESERVER INVESTMENT GUIDE A USEFUL INVESTMENT GUIDE TO HELP YOU MAKE THE RIGHT INVESTMENT DECISIONS

2 ABOUT THIS INVESTMENT GUIDE The investment world can be complicated and at times very confusing. The aim of this investment guide is to share some background information on investment related matters. We hope that doing so will assist you to explore the impact of the different choices that you can make and most importantly, make sure that your personal investment strategy is the most suitable to put you on track to meet your retirement needs. Making the right choices and decisions today means security and peace of mind in the future for you and your loved ones. This guide will provide you with information to better understand the investment packages, the investment portfolios available within each of these packages, and provide guidance on choosing an investment portfolio, the rules surrounding changing from one investment portfolio to another and types of investment risk that you should know about. While reading the guide, bear in mind that how you select your investment options depends on your attitude towards risk, the number of years of service you have left until you retire and your own financial planning. Remember that as you approach your retirement age your financial needs may change and so too your appetite for risk and return. 2

3 WHAT MAKES UP AN INVESTMENT PORTFOLIO At a very high level, there are two major types of assets, those that grow (called growth assets) and those that defend (called defensive assets) and one also has to appreciate how these different asset types behave over different periods. The mix between these two types of assets determines the risk and return characteristics of a portfolio. A more aggressive (high-growth) investment portfolio is one that will invest more in growth assets (which have the potential to earn higher returns) but this normally comes with extra risk as well. In other words, the long-term investment return is expected to be higher, but over the short term, you may see significant ups and downs in your investment value. By contrast, a more conservative investment fund will hold a much smaller proportion of growth assets and a larger portion in defensive assets. Although this means that you are likely to see fewer ups and downs in the value of your investment in the short term, it also means that over the long term you are likely to earn lower returns. TYPES OF GROWTH ASSETS EQUITIES Also known as shares. Initially we will only talk about listed shares. A company that wants to raise money in order to develop the business, issues shares. These are traded on a stock market (hence the term listed shares ) and investors buy and sell the shares (called trading) in order to make a return on their investments. They are considered one of the best investments to achieve superior long-term returns, but can be quite volatile in the short term. PROPERTY Property can be either be a direct or an indirect investment. Direct investment means owning the property, which in the case of retirement fund investments is likely to be commercial properties, such as offices and warehouses, or retail properties such as shopping centres. The properties are bought and then leased out to create income from the rent charged. Indirect property is where many investors monies are combined to create a pool that is then used to buy a portfolio of properties, which can then be traded like an equity share. Long-term property returns are generally lower than shares but are expected to be higher than cash and fixed interest. ALTERNATIVES The term Alternative Assets covers a range of very different asset classes including (but not limited to): COMMODITIES These are physical assets e.g. raw materials or precious metals. Historically the Pension Funds Act made provision for Funds to hold physical gold in the form of Kruger Rands; however this has been expanded in more recent times to include a broader range of commodities. Today it is common for portfolio managers to hold gold and platinum within their portfolios, however they generally do this by buying gold or platinum Exchange Traded Funds (ETFs) rather than physical bars of the precious metal far less tempting for bank robbers! ETFs are securities which trade on exchanges like other shares, but which track the movements of the price of the underlying instrument i.e. the gold or the platinum price. OLD MUTUAL SUPERFUND CHOICE INVESTMENT GUIDE 3

4 PRIVATE EQUITY The difference between private equity and your normal equity (or shares) is simply that with private equity you hold shares in a company that is not listed on the stock exchange. Private Equity investors don t enjoy the benefits associated with listed equity investors such as listing requirements and monitoring, transparency of pricing and trading ability. Private Equity investing thus carries more risk and the associated potential for higher returns. Such investments tend to be made with a fixed-term view on a particular company and the investor is often required to supply financial assistance and/or operational assistance in the underlying investments. HEDGE FUNDS This asset class refers to Funds who use diverse investment techniques to achieve the return objective. In the South African environment such return objectives are generally absolute in nature i.e. they seek to achieve positive returns irrespective of the markets. Such techniques include the use of derivatives, which has led to the public impression that Hedge Funds must be risky investments. A derivative is a contract between two or more parties based upon an asset where the value of the contract is determined by fluctuations in the underlying asset value. Whilst this is true for some Funds, locally it is far more common for such Funds to be structured to be less risky than traditional investments and portfolio managers will often bring them into their portfolio to add diversification, reduce risk and enhance the stability of returns. TYPES OF DEFENSIVE ASSETS CASH Cash can be money held on deposit at a bank as well as other money market securities, which earn interest over time. Whilst cash returns are normally very stable, the long term return is only slightly higher than inflation after costs. BONDS Bonds are loans taken out by a company or a government over a fixed amount of time in return for a fixed interest rate as well as the return of the original capital. The buyer of the bond is the organisation lending the money. Different types of bonds have different levels of risk. Generally they are considered lower risk than shares or property with the associated lower expected return if held until they mature (i.e. when the original capital amount is returned). Bonds can be traded on a stock market, and their price moves up and down depending on supply and demand, although usually less frequently and with lesser price changes than company shares. Spreading your investment across growth and defensive assets reduces the impact of market events and therefore reduces risk. Spreading such asset classes beyond our borders, across different economies and different currencies, reduces risk even further. 4

5 GET TO KW THE VARIOUS INVESTMENT RISKS There are three primary risks that you need to consider: RISK Inflation Capital loss DESCRIPTION OF THE RISK Your investments fail to deliver your targeted return in excess of inflation (and therefore you fail to achieve your targeted income after retirement). A market correction causes your investments to drop in value. Market corrections are more likely with assets that are traded on the stock exchange and are vulnerable to market sentiment which might be influenced by the prevailing economic and political conditions (not only in South Africa but worldwide). WHEN DOES THE RISK MATTER? Throughout your career Shortly before retirement, if you will be selling these assets in order to invest in your chosen retirement option. (If you will not be selling those assets, for example because you will draw down on your assets with a living annuity after retirement, then the market may recover and a temporary correction is irrelevant. Some corrections can be very long term when associated with bubbles such as that in Japan in the 1980s and 1990s.) HOW CAN YOU REDUCE THE RISK? Select an investment portfolio that invests in growth assets such as company shares, property, and index-linked bonds or index tracking funds that aim to give you your targeted return. This portfolio could be: (a) A market-linked portfolio in which you get the returns achieved on the assets invested in the portfolio, which then exposes you directly to the risk of capital loss (see below) but which immediately gives you any investment gains. Market-linked portfolios could be either actively managed (i.e. they try to outperform other managers, and therefore the index reflects market performance) or passively managed (i.e. they are invested in line with such an index), or (b) A smoothed-bonus portfolio which has exposure to growth assets, but which holds back some returns in good periods and releases these in poor periods. In either case, the portfolio is likely to give you some indication of its targeted return in excess of inflation. (a) If appropriate, reduce your exposure to growth assets as you approach retirement. This could be done by investing more in bonds and cash, or in alternative products, such as absolute return funds that aim at capital protection, which are less subject to large market corrections. This is the rationale behind lifestage portfolios, which do this automatically. You must make sure, however, that the lifestage portfolio is aiming at an investment mix on your retirement which suits your intended retirement options (see the incompatibility risk below). (b) Invest in a smoothed-bonus portfolio. There are then two aspects to the reduction of such risk: The smoothing process holds back returns in the good years to support returns in the poor years. You are therefore less likely to bear a loss at all, or the loss is likely to be lower than you would experience if directly exposed to the market. The insurers that offer smoothed-bonus products often incorporate guarantees. These might apply to a percentage of the total amount invested, or may relate to the accumulation of vested bonuses. (c) Invest in cash which could be bank deposits or money-market funds. (The problem with doing this too soon, is that cash does not deliver the inflation-beating returns that you might require.) OLD MUTUAL SUPERFUND CHOICE INVESTMENT GUIDE 5

6 RISK DESCRIPTION OF THE RISK When you come to retire, you might have to sell assets in order to reinvest in your chosen retirement option. If the assets you sell are misaligned with the assets that you then buy and the prices of these assets move in opposite directions as you approach retirement, you could suffer an unexpected loss. WHEN DOES THE RISK MATTER? HOW CAN YOU REDUCE THE RISK? Incompatability of your investment strategy before retirement with your retirement option. At retirement Choose your retirement option at least 3 to 5 years before retirement (with help from your financial adviser), and align your investments over this last 3 to 5 years so that there are minimal risks of your pre-retirement and post-retirement investments diverging in value. 6

7 UNDERSTANDING YOUR INVESTMENT PACKAGE Your employer will have selected one or more of the investment packages outlined in this guide and made these available to you as an Old Mutual SuperFund Choice member. These investment packages were selected to provide members, who have different attitudes towards risk, different levels of understanding of investments, and different desires to manage their investment choice, with a range of options appropriate to their circumstances. If you re not sure which investment packages are available to you, be sure to ask your employer or HR department. Then look through the information provided here on the Old Mutual SuperFund Choice investment packages and select your investment according to your unique needs and preferences. Depending on what your employer has selected, the investments offered to you as part of Old Mutual SuperFund Choice could include: INVEST- MENT PACKAGE Trustee Choice Lifestage Strategy Extended WHAT IS IT The Management Board has selected a smoothed-bonus portfolio as the portfolio in this package, which provides the potential for investment growth, targeting 5% in excess of inflation, with smoothed returns and an 80% capital guarantee. If your employer has not selected a lifestage portfolio as the default, this will be your default investment portfolio, which means that if you don t specifically choose to invest in any of the other investment portfolios on offer (or if no other investment packages are available), this is where your retirement savings will be invested. This is a selection of smoothed or market-linked investments that are designed to automatically adjust how your savings are invested as you move through your career towards retirement. Generally, this means that when you are young and starting out, your money will be placed in investments that are more aggressive (because you need maximum growth and won t be too worried about risk), targeting high returns relative to inflation. As you get closer to retirement, though, your investment will be shifted into more conservative investments to protect your savings until you need them. Note that there are different levels of downside risk in each of these options. Your employer could have selected one of the Lifestage investment options as your default investment portfolio. This is made up of a selection of Old Mutual investment portfolios. This investment package will only be available to you if your employer also offers both the Trustee Choice and Lifestage investment packages. This is a wide selection of single- and multi-managed investment portfolios from lots of different investment providers, including Old Mutual. This investment package will only be available to you if your employer also offers you the other three investment packages Trustee Choice, Lifestage and Strategy. Single-Manager a manager who builds portfolios consisting of various asset classes and who is solely responsible for asset allocation between classes, and security selection within each asset class Multi-Manager a manager who invests in a range or multiple of single-manager portfolios usually managed by other people, where the portfolios are chosen to optimise returns from managers with different investment approaches. HOW INVOLVED WILL YOU NEED TO BE This is a completely hands-off solution which means you don t need to be involved in any decisions regarding your investment. You can leave all of that up to the Old Mutual SuperFund Management Board. This is mostly a hands-free investment package that allows you to make some decisions regarding your investment. These decisions are usually made when you first invest, and then any changes to your investments are made automatically as you get closer to retirement. This is a hands-on solution, which means you need to be involved in investment decisions. You should only choose this investment package if you have the knowledge and time to be actively involved in managing where your retirement savings are invested. This is a hands-on solution, which means you need to be highly involved in investment decisions. You should only choose this investment package if you have the expertise and time to be actively involved in selecting your underlying investment portfolios and actively managing where your retirement savings are invested over time. OLD MUTUAL SUPERFUND CHOICE INVESTMENT GUIDE 7

8 IMPORTANT INFORMATION ABOUT CHOOSING YOUR INVESTMENT PACKAGE AND PORTFOLIOS 1. If more than one of the above investment packages is available to you, your retirement savings have to be fully invested in ONE of the packages at any given time. Within Strategy and Extended, investments can be split between different investment portfolios within the package, but investments cannot be split across packages. You can, however, switch between packages at any time. 2. If you don t make a specific investment choice, your retirement savings will automatically be placed into the default investment portfolio chosen by your employer. The default investment portfolio will be either Trustee Choice or one of the Lifestage investment options chosen by your employer. ARE THE STRATEGY AND/OR EXTENDED PACKAGES AVAILABLE TO ME? Is LifeStage available to me? Do I want extensive investment choice? Am I prepared to pay higher administration fees? Am I prepared to make my own investment decisions or do I have a personal financial adviser to assist me with these decisions? I want to invest in a growth investment portfolio for most of working life, with automatic transition to a more conservative investment portfolio as I approach retirement. Do I only want a selection of Old Mutual investment portfolios to choose from? Do I want a wider range of investment portfolios to choose from? STRATEGY PACKAGE R50 pmpm EXTENDED PACKAGE R80 pmpm TRUSTEE CHOICE R27.50 pmpm I prefer not to make my own investment decisions. I prefer a less risky investment. I would prefer the default investment package selected by the Old Mutual SuperFund Trustees. LIFESTAGE R27.50 pmpm The fee shown is the administration fee per member per month. 8

9 INVESTMENT PORTFOLIO OPTIONS In the Old Mutual SuperFund your investment choice depends upon the package selected by your employer. Your package options can be summarised as follows: Trustee objective relative to inflation, after any capital charges and investment management fees Investment portfolios available to you CHOICE TRUSTEE-CHOICE LIFESTAGE STRATEGY EXTENDED Inflation + 5.5% Inflation + 5% transitioning into inflation + 3% in the 3 years before retirement Old Mutual Absolute Stable Growth Options of: Smoothing Single-Manager Multi-Manager Passive Each fact sheet gives the manager s objective. The trustees have included a range to suit members with different characteristics Limited range of Old Mutual portfolios Each fact sheet gives the manager s objective. The trustees have included a range to suit members with different characteristics Wide range of portfolios (See list below) targeting returns from Inflation + 1% (but full capital protection) to inflation + 7% (with no capital protection) OLD MUTUAL SUPERFUND CHOICE INVESTMENT GUIDE 9

10 WHY THESE INVESTMENT PORTFOLIOS TRUSTEE-CHOICE Members who fall into this category are happy to leave the investment decisions to the Trustees. They want the Trustees to manage the investment risks to which they are exposed. The Management Board therefore chose a smoothed bonus portfolio that offers moderate returns (inflation plus 5.5%) and a high level of guarantee. LIFESTAGE Members who fall into this category are prepared to take a more active role in the investment selection than the members who fall into the Trustee-Choice category. They understand that it is necessary to have a longterm perspective and, while there are ups and downs in the market, these are not critical until shortly before retirement. If there are long-term corrections many years before retirement, there are opportunities to increase contributions or change investment strategy and correct the situation before retirement. Four choices are available, catering for people who want smoothing of returns (protecting them against short-term fluctuations in the market), passive investment (where they want market returns but don t want the expense and risk of managers trying to beat the market) and active investment management either single-manager or multi-manager: Are your members concerned about monthly volatility of returns This option would provide you with Medium Risk Exposure This option would provide you with Medium to Higher Risk Exposure Smooth Bonus Lifestage Products on offer Smooth Bonus Lifestage Products on offer Old Mutual Smooth Growth Portfolio Old Mutual Stable Growth Portfolio Index Tracking Strategy Active Strategy Index Tracker Lifestage Solution Old Mutual Nucleus Balanced Index Life Fund Old Mutual Nucleus Conservative Index Life Fund Single-Manager Lifestage Solution Old Mutual Investment Group Profile Edge28 Old Mutual investment Group Profile Capital Multi-Manager Lifestage Solution Old Mutual Multi-Manager Inflation Plus 5-7% Old Mutual Multi-Manager Inflation Plus 3-5% Funds 10

11 A SMOOTHED BONUS LIFESTAGE The members will be invested in the Old Mutual Absolute Smooth Growth portfolio until 7 years before retirement, and the Absolute Stable Growth portfolio for their last 3 years before retirement, with a phased transition from the one portfolio to the other in the 6th to the 4th year before retirement. The Absolute Smooth Growth and Absolute Stable Growth portfolios share the same underlying asset mix, but have a different level of guarantee and different charges associated with that guarantee. Up to 7 years before retirement, there is a 50% guarantee and a capital charge of 0.20% per year for the guarantee. This will protect members against a catastrophic fall in investment values at a modest charge. In the last 3 years, there is an 80% guarantee and a capital charge of 0.70% per year for the guarantee. Members are therefore guaranteed that they cannot lose more than 20% of their retirement capital in the last three years, no matter what happens in the market. The underlying portfolio has a high exposure to growth assets, with as much as 80% in a mix of equities, property and alternative assets. With the phased transition from the Absolute Smooth Growth to the Absolute Stable Growth portfolios, the guarantee level and fee will change smoothly from the one to the other. Bonuses are smoothed so that members are protected against the shortterm fluctuations of the market. MARKET-LINKED LIFESTAGE PORTFOLIOS There are three options offered here: a single-manager active offering, a multi-manager active offering, and a passive offering. In all three, the member is exposed to market movements: suffering any market corrections but benefiting immediately from any market gains. A SINGLE-MANAGER MARKET-LINKED LIFESTAGE The single-manager offering is an Old Mutual specific actively-managed portfolio where the manager will seek to outperform the market but reduce volatility as the member approaches retirement. This is done by investing in the Old Mutual Profile Edge28 portfolio until 7 years before retirement, and then phasing a transition to the Old Mutual Profile Capital portfolio for the last 3 years before retirement. A MULTI-MANAGER MARKET-LINKED LIFESTAGE Old Mutual Multi-Managers (OMMM) has designed a combination of portfolios actively managed by different investment managers. In the growth phase, up until 7 years before retirement, the portfolio is the OMMM Inflation Plus 5-7% portfolio. This is transitioned into the OMMM Inflation Plus 3-5% portfolio for the last 3 years before retirement called the protection phase. A PASSIVE MARKET-LINKED LIFESTAGE Recognising that there are some members who will want market-related returns but without paying for active investment management (i.e. managers that attempt to outperform the market), Old Mutual s passive investment boutique is used for the passive lifestage portfolio. Old Mutual Nucleus Balanced Index Life Fund is used for the growth phase up to 7 years before retirement. This is then phased into the Old Mutual Nucleus Conservative Index Life Fund for the last 3 years before retirement. OLD MUTUAL SUPERFUND CHOICE INVESTMENT GUIDE 11

12 STRATEGY A range of Old Mutual Group managed investment portfolios are available, categorised into low risk/low reward, medium risk/medium reward and high risk/high reward. The portfolios are broken down between smoothed bonus, market linked and targeted-return portfolios. The targeted-return portfolios all share an objective to achieve a return relative to inflation but also to protect against capital loss. The strategy range is intended for members who want to be hands on with their investment management and who have the expertise to do this (or access to such expertise through their personal financial planners). Do you have an appetite for risk? ( i.e. how happy are you to tolerate the ups and downs of the market in return for immediate market returns) Lower Medium Higher Would you prefer a smooth bonus product? Would you prefer a smooth bonus product? You have a choice between Targeted Return Portfolios or Market Linked Portfolios. Targeted Return Portfolios Market Linked Portfolios You have the option of choosing between Targeted Return Portfolios or Market Linked Portfolios. Smooth Bonus Product Targeted Return Portfolios Market Linked Portfolios on offer. Smooth Bonus Portfolio on offer. Is Shari ah compliance important to you? (Investing in line with Islamic princples) Shari ah Compliant Portfolio on offer. Market Linked Portfolios 12

13 EXTENDED A wide range of investment portfolios is available, categorised into low risk/low reward, medium risk/ medium reward and high risk/high reward. Within these, the portfolios are broken down between smoothed bonus, market linked, and targeted-return portfolios. The targeted-return portfolios all share an objective to achieve a return relative to inflation but also to protect against capital loss. The Trustees have sought to offer, in each category, a choice between the best performing Old Mutual portfolio in the category and similar portfolios from competitors with consistent first or second quartile investment performance when compared against their peers. The investment portfolios are reviewed annually using both quantitative and qualitative analysis over rolling 3-year periods comprised of, where possible, bull, bear and trendless markets. The extended range is intended for members who want to be hands on with their investment management and who have the expertise to do this (or access to such expertise through their personal financial planners). What is your appetite towards risk - do you have an appetite for it? Lower Medium Higher Would you prefer a smooth bonus product? Would you prefer a smooth bonus product? You have a choice between Targeted Return Portfolios or Market Linked Portfolios. Targeted Return Portfolios Market Linked Portfolios You have the option of choosing between Targeted Return Portfolios, Market Linked Portfolios, Fixed Interest Portfolios or Money Market Portfolios or Market Linked Portfolios. Smooth Bonus Product Targeted Return Portfolios Market Linked Portfolios Fixed Interested Portfolios Money Market Portfolios Smooth Bonus Portfolio Is Shari ah compliance important to you? (Investing in line with Islamic princples) Shari ah Compliant Portfolio on offer You have a choice between Targeted Return Portfolios or Market Linked Portfolios Targeted Return Portfolios on offer Market Linked Portfolios on offer OLD MUTUAL SUPERFUND CHOICE INVESTMENT GUIDE 13

14 THE AVAILABLE INVESTMENT PORTFOLIOS The details of the portfolios offered are as follows, with fact sheets available through the website for each portfolio. The various category descriptions tie in to how you might consider investment risk in the next section. The Trustee target is their targeted performance relative to inflation. Targeted return portfolios have an added objective, namely to protect against capital loss; they might underperform relative to the market-linked portfolios in the same category (which are not seeking to protect capital) but may have succeeded in meeting their capital protection objective. The latter is one of the factors that is considered in the annual review of the investment portfolios. INVESTMENT PORTFOLIO RISK PROFILE INVESTMENT PORTFOLIO FUND PROFILE INVESTMENT PORTFOLIO SUPERFUND INVESTMENT PACKAGE TRUSTEE TARGET Trustee Choice Lifestage Strategy Extended Low Reward/ Volatility Money Market Fixed Interest Smooth Bonus Market Linked (Active) Market Linked (Index Tracking) Targeted Return (< CPI + 4%) FutureGrowth Core Money Market Yes CPI + 1% Taquanta Cash Pooled Yes CPI + 1% Nedgroup Investments Flexible Income Fund Yes CPI + 2% Old Mutual Coregrowth 100 Yes Yes CPI + 3% Old Mutual Absolute Secure Growth Yes Yes CPI + 3% Investment Solutions 37.5% Equity Yes CPI + 3% Allan Gray Global Stable Yes CPI + 3% Nedgroup Investments XS Guarded Fund of Funds Yes Yes Yes CPI + 3% Nedgroup Investments Core Guarded Fund of Funds Yes Yes Yes CPI + 3% Old Mutual Nucleus Conservative Index Life Fund Yes Yes Yes CPI + 3% OMMM Inflation Plus 1-3% Yes Yes Yes CPI + 2% OMIG Profile Capital Yes Yes Yes CPI + 3% 14

15 INVESTMENT PORTFOLIO RISK PROFILE INVESTMENT PORTFOLIO FUND PROFILE INVESTMENT PORTFOLIO SUPERFUND INVESTMENT PACKAGE TRUSTEE TARGET Trustee Choice Lifestage Strategy Extended Medium Reward/ Volatility Smoothed Bonus Market Linked (Active) Market Linked (Shariah Compliant) Market Linked (Index Tracking) Targeted Return (CPI + 4-5%) Old Mutual Absolute Stable Growth Yes Yes Yes Yes CPI + 5.5% Old Mutual Absolute Smooth Growth Yes Yes Yes CPI + 6% Allan Gray Life Global Balanced Yes CPI + 5% Coronation Global Houseview Yes CPI + 5% Investment Solutions Performer Yes CPI + 5% OMIG Profile Balanced Yes CPI + 5% OMMM Managed Yes Yes CPI + 5% Prudential Global Balanced Yes CPI + 5% Nedgroup Investment XS Diversified Fund of Funds Yes Yes Yes CPI + 5% Oasis Crescent Balanced Progressive Fund of Funds Yes CPI + 5% Old Mutual Albaraka Balanced Fund Yes Yes CPI + 5% Nedgroup Investment Core Diversified Yes Yes Yes CPI + 5% Old Mutual Nucleus Moderate Index Life Fund Yes CPI + 4-5% OMIG Profile Moderate Growth Yes CPI + 4% OMMM Absolute Defensive Yes Yes CPI + 4% OMMM Inflation Plus 3-5% Yes Yes CPI + 4% Prudential Inflation Plus Global Yes CPI + 5% Coronation Global Absolute Yes CPI + 5% Higher Reward/ Volatility Market Linked Coronation Managed Fund Yes CPI + 7% Investec Managed Yes CPI + 7% OMIGSA Profile Edge28 Yes Yes Yes CPI + 7% Market Linked (Index Tracking) Targeted Return (> CPI + 5%) Old Mutual Nucleus Balanced Index Life Fund Yes Yes Yes > CPI + 5% OMMM Absolute Balanced Yes Yes CPI + 6% OMMM Inflation Plus 5-7% Yes Yes Yes CPI + 6% OMMM Max 28 Portfolio Yes Yes CPI + 6% Each of these portfolios has a fact sheet, which is accessible as follows: investment-funds OLD MUTUAL SUPERFUND CHOICE INVESTMENT GUIDE 15

16 SWITCHING RULES (BETWEEN PORTFOLIOS, BETWEEN PACKAGES, LIFESTAGE TRANSITIONING) From time to time you may ask yourself whether you are in the right portfolio or consider changing packages or strategies depending on what is available to you. In this case you will find that you need to complete an Investment change form. Switching rules govern when you can submit such a form. Always remember that in order to ensure that your retirement savings are working as hard as they can for you, it s vital that you know they are invested in the right investment portfolio. Please check which portfolios you are invested in by reviewing your Member Benefit Statement (MBS), which shows all the details of your Old Mutual SuperFund investments. Alternatively, you can ask for the details from your Human Resources Officer or you can visit our online Secure Services. If you don t make a specific investment choice, your retirement savings will automatically be placed into the default investment portfolio chosen by your employer. The default investment portfolio will be either Trustee Choice or one of the Lifestage investment options chosen by your employer. YOU CAN SWITCH BETWEEN PORTFOLIOS IF PERMITTED BY YOUR EMPLOYER Where the investment package selected by your employer offers more than one investment portfolio, you can transfer all or some of the balance in your Member Account to another portfolio within that package, or you can direct that your future contributions be invested in a particular portfolio, or both. There is no maximum number of investment portfolios in which you can have your retirement money invested at any one time. However, your future contributions can only be allocated towards a maximum number of 10 portfolios. The allocation must be made in % terms, for example 10% to portfolio A and 90% to portfolio B etc. But note the following important information: a minimum percentage of 1% is allowed and the % allocations to each portfolio must not include decimal points as it must be a whole number (so no 55.5% to one portfolio and 44.5% to another is not permitted but 56% and 44% is) and the sum or total of your portfolio selection % allocations must add up to 100%. 16

17 VERY IMPORTANT INFORMATION ABOUT SWITCHING If you are invested in one of the following portfolios then please note that you are allowed to make Book Value or Market Value switches: Old Mutual Absolute Secure Growth Old Mutual Absolute Stable Growth Old Mutual Absolute Smooth Growth Old Mutual Coregrowth 100 SO WHAT ARE THESE BOOK VALUE AND MARKET VALUES? To understand book and market value switches, it is necessary to understand the following: How these portfolios work. What your payout value is if you are invested in either portfolio and retire or resign. How much you can switch out if you are invested in either portfolio. HOW THESE PORTFOLIOS WORK IN A BIT MORE DETAIL The above-mentioned portfolios are examples of Smoothed Bonus portfolios. These portfolios deliver stable returns by declaring bonuses which smooth out the volatility associated with investing directly in an openmarket (or marked-linked ) investment. Member contributions (and capital investments) are invested in a balanced, market-linked portfolio which primarily invests in growth assets, such as the local stock market. There is a risk of negative returns whenever investments are made in the stock market. However, the Smoothed Bonus portfolios reduce this risk by passing the returns earned on the underlying portfolio on to members through smoothed bonuses which deliberately present a more stable return. This is done by declaring lower bonuses than the return that the underlying portfolio is delivering during periods of positive market performance, to build up reserves during these periods. The built-up reserves are then used to declare bonuses during periods of negative market performance that are higher than the marketrelated returns during those periods. During these periods of negative market performance, the value of your contributions accumulated with bonuses declared (known as the book value) is worth more than the market value of the underlying portfolio. Old Mutual maintains records of the following values for your investment: The value of contributions accumulated with bonuses declared (or book value); The value of those same contributions accumulated with returns earned on the underlying portfolio (or market value). As a result of smoothed bonuses, the book value of the Fund s investment in the portfolio may be lower or higher than its market value. During periods of high-performing markets, the book value is likely to be lower than the market value. During periods of suppressed markets, the book value may exceed the market value. However, if as a member you are entitled to investment choices (made available by your employer) and you want to switch from a Smoothed Bonus investment to an alternative investment option, Old Mutual will allow this to occur at book value, by means of a book value switch on two specific dates a year, provided the Fund as a whole does not want switches out of more than 10% of the total portfolio value in any year. Switches on any other date are at the lower of market and book values (i.e. a market value adjuster may OLD MUTUAL SUPERFUND CHOICE INVESTMENT GUIDE 17

18 apply). These restrictions affect all members who make switches, thus protecting the interests of the remaining members. A market value adjuster is applied only when the market value is lower than the book value, in which case you may be paid a lower value than your book value. A market-value adjuster is not applied if you exit the Fund by retiring, on retrenchment, on resignation, or on your death or your disablement. BOOK VALUE SWITCHES Allowed at the book value twice a year on 30 September and 31 March. A minimum of 3 months notice for these switches is required, i.e. a completed switch form must reach Old Mutual at least 3 months before the switch date. There is an annual limit to this book value switch facility to protect investors in these portfolios in adverse market conditions when the bonus smoothing reserve (BSR) is negative. The BSR is the difference between the market value of the underlying investments of the Smoothed Bonus portfolio and the total book values of all customers invested in the portfolio. If you want to switch on any date other than the two dates specified above, a Market Value Switch can be processed. MARKET VALUE SWITCHES Allow you to switch portfolios on a monthly basis at book value less a market value adjuster when applicable. Old Mutual must receive this instruction by close of business on the 20th of each month. Any instruction received after this date will only be processed in the following month. The purpose of the Market Value Adjuster (MVA) is to protect the policyholders remaining in the portfolio. A MVA is applied when the market value of the assets is less than the book value. The MVA is expressed as a percentage (%) of the book value, so the amount switched is reduced by Book Value x MVA% Old Mutual retains ultimate discretion on the level of an MVA. BETWEEN PACKAGES You can also choose to move between packages. Bear in mind that you may only select a package that has been approved by your employer. These packages consist of Trustee Choice, Lifestage, Strategy and Extended. If you are able to switch between packages your Member Account and future contributions will be invested in that specific package and the portfolio selected. If you choose to switch into a package that offers choice, you must not forget to also choose the investment portfolio or portfolios that you want to invest your retirement savings in. 18

19 PRESERVATION (PRESERVER OPTION) Old Mutual SuperFund Preserver allows Members to continue their Old Mutual SuperFund membership even after they have left their employment thus aiming to keep their retirement savings growing. Under Old Mutual SuperFund Preserver, Members enjoy all of the Old Mutual SuperFund standard choices and benefits, investment fees applicable to large business, as opposed to business administered on an individual basis, and administration fees. For more detailed information on Old Mutual SuperFund Preserver membership, please read the Old Mutual SuperFund Preserver Member Guide. To enjoy the benefits of this arrangement all you need to do is inform your employer, payroll administrator, or HR representative that you are choosing the Preserver membership. The process to move you to Old Mutual SuperFund Preserver is easy, automatic and seamless. On termination of employment, the balance of your Old Mutual SuperFund retirement savings will be transferred to your Old Mutual SuperFund Preserver Account where it will stay invested in the same Old Mutual SuperFund investment portfolio that it was in while you were an employee. Unfortunately, you will not be allowed to continue to contribute, but your retirement benefit will continue to grow. The Preserver Option entitles you to switch between portfolios and packages as mentioned in the previous sections. DEFERRED RETIREMENT Old Mutual SuperFund will allow you to continue your membership even though you have retired from your employer. This means that you are no longer forced to retire from the Fund when you still have other sources of income available and therefore don t need your retirement benefit yet! Old Mutual SuperFund Deferred Retirement provides you with the option to keep your retirement savings invested, protected and growing while you decide on a more appropriate time to access your retirement benefit. This is especially important if you are concerned that you may not have enough saved to retire comfortably, or if you want to give your accumulated savings an extra boost. For more detailed information on Old Mutual SuperFund Deferred Retirement membership, please read the Old Mutual SuperFund Deferred Retirement Member Guide. To enjoy the benefits of this arrangement all you need to do is inform you employer, payroll administrator, or HR representative that you are choosing Deferred Retirement membership. The process to move to Old Mutual SuperFund Deferred Retirement is easy, automatic and seamless. On retirement from your employer, the balance of your Old Mutual SuperFund retirement savings will be transferred to the Old Mutual SuperFund Deferred Retirement facility where it will stay invested in the same Old Mutual SuperFund investment portfolio that it was invested in while you were an employee. Unfortunately, you will not be allowed to continue to contribute, but your retirement benefit will continue to grow. Under Old Mutual SuperFund Deferred Retirement, members enjoy all of the Old Mutual SuperFund standard choices and benefits, investment fees and administration fees. This entitles you to switch between portfolios and packages as mentioned in the previous sections. OLD MUTUAL SUPERFUND CHOICE INVESTMENT GUIDE 19

20 ombds L11248 Old Mutual is a Licensed Financial Services Provider