Outcome-based investing An introduction to our innovative investment philosophy
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An investment approach to support you on your journey to financial wellness Focusing on the right conversation your financial wellness The Financial Wellness Framework has been purpose built to provide you with a comprehensive snapshot of your financial wellness at any stage of your life. More importantly, because your primary and secondary needs are intertwined, the framework provides you with a holistic view of your state of financial wellness. The framework also highlights gaps that could potentially prevent you from enjoying optimal financial wellness, now and in the future. If I lose my income If I have medical expenses If I have family medical expenses Having an executable will Provide for my retirement If I become disabled If I get a major illness Provide for future & emergency PROTECT ME BUILD MY FUTURE MY MONEY Financial plan Budgeting Debt management Tax SUPPORT MY FAMILY PROTECT MY STUFF If I die prematurely To educate my children My car My personal belongings Create my wealth Family & business continuity My buildings My home content In keeping with the financial wellness framework, has developed a unique investment philosophy that prioritises the prospect of you achieving your own unique investment goal(s). We call this revolutionary investment approach Outcome-based Investing. investments outcome-based investing 2017 Page 3 of 16
Introducing outcome-based investing Investors today are increasingly focusing on their ability to beat the market benchmark by selecting the best performing funds and/or investment managers. However, the truth is that beating the market is no guarantee of investment success. Investment success is about consistently meeting an investor s investment needs whether that be to generate an income stream in retirement, preserve capital or simply to grow their wealth within the parameters of a certain risk profile. For investment providers this means that the bar has been raised. In response to the ever-evolving investment landscape, has built a leading range of outcome-based investment solutions that set their sights beyond mere benchmarks and instead focus on the things that matter the most to investors ensuring they achieve their investment goals. Thinking beyond a benchmark The philosophy behind outcome-based investing is simple: Put the investor first. To that end, s Outcome-based Solutions are purpose built to solve a specific, quantifiable investor need. Focusing on a goal acknowledges that people invest to meet day-to-day and long-term real life needs and aspirations not to simply beat an arbitrary market benchmark. Outcome-based investing means building a portfolio that is capable of meeting an investor s needs. The traditional approach to investing, whereby investors would essentially select an investment manager or fund that attempts to outperform a generic market benchmark that may (or may not) match up with their desired needs, is fast being replaced with a new way of thinking. It is for this very reason that has developed a leading range of outcome-based solutions that are managed differently and are not limited to a single market benchmark, but instead focus on consistently ensuring investors needs are met. OK Google What is Outcome-based Investing? Use Google Voice Search on your mobile or desktop. Or visit www.momentuminv.co.za/obi to find the answer. Page 4 of 16 investments outcome-based investing 2017
It s about investing with purpose Outcome-based investing is about placing the investor s needs at the centre of the investment process. What it is Building portfolios around an investor s needs, not an arbitrary peer group. Maximising the probability of achieving an investor s unique goal(s). Ensuring portfolios remain flexible, adaptable and diversified. Ensuring an attractive risk-adjusted return which provides a more consistent investment experience over time. Limiting the risk and temptation of market timing. What makes outcome-based investing different? An outcome-based approach to investing focuses on consistently delivering on an investor s expectations. At we employ rigorous market, investment style and mandate research to analyse the investment universe with the aim of determining the optimal asset allocation and most beneficial investment mandates to improve the probability of achieving an investor s predefined investment objective. Once the correct asset allocation and preferred investment mandates have been identified, those select mandates are skilfully blended to create the optimal outcome-based solution that is capable of delivering on an investor s needs within the desired timeframe. A core feature inherent in outcome-based investing is the enhanced levels of diversification, relative to most other investment approaches. This adds to the robustness and experience through time as well as adding to the predictability of the outcome. Note: For illustrative purposes only. Important: The above illustration has not been constructed from actual data. Return maximising investors often want equity market upside, yet are often not equipped to weather the downside. They often lack the skills to diversify and the flexibility to adjust their approach with changing market conditions, making their investments ill-equipped to achieve their desired investment outcome. Holding firmly to an outcome-based investment objective means using diversification and unrivaled flexibility to target the necessary investment return to deliver on the desired investment outcome, whilst simultaneously limiting any unnecessary risk. At the end of the day, outcome-based investing aims to take the stress out of trying to time the market. investments outcome-based investing 2017 Page 5 of 16
Rising to investor challenges It is impossible to accurately predict which fund manager or investment style is likely to outperform in the future. As illustrated below, investment managers and styles often experience success in extremely unpredictable and erratic phases, with no one manager demonstrating the ability to deliver peer-beating returns in a consistent and predictable manner. 2005 2006 2007 2008 2009 2010 Top half MetAM OMAM MetAM Cadiz African Harvest MetAM OMAM RMB AM RMB AM Bottom half RMBAM MetAM African Harvest MetAM RMB AM Cadiz African Harvest RE:CM African Harvest MetAM RMBAM RMB AM 2011 2012 2013 2014 2015 2016 Top half RE:CM AM RE:CM ABSA RE:CM AM ABSA MMI Bottom half AM AM ABSA AM RE:CM ABSA RE:CM Source: Alexander Forbes Surveys 2002 to 2016 Ironically, as the illustration above clearly shows, investors who select managers based on favourable past performance place themselves at a disadvantage in terms of meeting their investment objectives. By shifting the conversation towards meeting investors needs, Investments takes the risk out of trying to anticipate which manager will be the best performer over any given period and instead utilise a well diversified investment strategy to maximise the probability of an investor achieving their own unique investment goal(s). Selecting managers or funds based on past performance offers a false sense of confidence that may ultimately prove disastrous for an investor. Understanding how investment opportunities and risks change with time and across different economic cycles is critical in implementing a successful investment strategy capable of meeting an investor s needs. Page 6 of 16 investments outcome-based investing 2017
Rather focus on what matters, achieving an investors goals We all know that market volatility can sometimes be unnerving. Fortunately, some factors such as how and when to invest remain under our control no matter the market conditions. In the midst of market uncertainty, what is really important is that investors stay committed to their investment plan and remain invested. In today s uncertain world it is tempting to become wary or attempt to time the market by pulling out of it entirely on the belief that one s investment is underperforming. As illustrated below, investors who lose their long term focus and try to time the market often reduce their investment returns. Markets are unpredictable which is why we choose to rather focus on the investment outcome and ensure that investors remain invested to achieve their goals, regardless of market conditions. The objective is simple, to keep investors invested Missing top performing days by trying to time the market can result in investors failing to achieve their investment goal(s). FTSE/JSE All Share Index, 1996-2016 18% sometimes the best thing to do is nothing 16% 14% Annualised return 12% 10% 8% 6% 4% 2% 0% Stayed invested Missed 5 days Missed 10 days Missed 15 days Missed 20 days Missed 25 days Source: I-Net Bridge Outcome-based investors who remained invested over a twenty-year period and refrained from attempting to time the market would have experienced far superior returns. In fact investors who stayed the course would have received nearly double the returns than their peers who missed the top 25 performing days over the past two decades. Volatile markets increase the risk of buying and selling at the wrong time. It is often intuitive to buy when prices are low, but it s difficult or even impossible to correctly predict the best time to invest. The best approach for weathering a market storm is often the oldest one in the playbook: Stay invested and remain focused on the goal. investments outcome-based investing 2017 Page 7 of 16
Why is it important that investors returns exceed inflation? Outcome-based investing is about developing investment strategies that are specifically designed to meet the future needs of investors. Inflation (often referred to as Consumer Price Index or CPI) is the ever-present increase in prices for goods and services over time. When inflation increases, there is a proportionate decline in the purchasing power of your money. Similarly, inflation reduces or erodes the purchasing power of one s investment. If an investment doesn t grow at least in line with inflation, it is unlikely that such investment will be able to meet the purchase power requirements of the investor (for example sustaining an investor s standard of living in retirement or saving for a child s education). OK Google How does Outcome-based Investing protect investors from inflation? Use Google Voice Search on your mobile or desktop. Or visit www.momentuminv.co.za/obi to find the answer. Page 8 of 16 investments outcome-based investing 2017
Beat inflation: it s never too late to start If you wanted to buy a cup of coffee each morning for every day of your retirement, how much money would you need? You could think about this in terms of the total amount of money that you ll need to have accumulated at retirement to buy all of your retirement coffee. For simplicity s sake, let s remove inflation from the equation and assume that the price of your cup of coffee will not change over time. The calculation might go something like the below illustration. R18 PER DAY R6 570 R65 700 Cost of a cup of COFFEE year total decade total R197 100 30-year retirement total *For illustrative purposes only. So you ll need R197 100? Not quite, as there are many unknowns that you will have to take into account. Let us assume you are retiring in ten years time and will enjoy a 30-year retirement. How much money will you need to satisfy your coffee cravings if inflation remains at around 6% per year? The truth is that after inflation has been taken into account, you will need R519 412 and not R197 100. Because inflation can have a profound effect on your goals, we believe that investing should focus on an investor s needs, rather than putting money aside and hoping you will have enough savings in retirement. Before inflation After inflation R197 100 R519 412 investments outcome-based investing 2017 Page 9 of 16
How we build outcome-based solutions Portfolio construction methodologies (much like markets) have evolved, people think differently, new ideas come to the fore, asset return profiles change, perceptions and understanding of different risk metrics differ and all of this leads to adaptive methodologies and techniques to account for the ever changing investment landscape. Yet despite the ever-evolving investment challenges, one thing has remained remarkably consistent; all investments need to ultimately cater for and deliver on an investor s needs. At we have developed a market-leading investment process to deliver on investor s expectations. 1. We analyse markets and strategies to comprehend how best to create a well-diversified solution with the optimal asset allocation. 2. We identify the most beneficial investment strategies to employ in the current economic environment (including factors such as investment style, regional exposures, currency, economic environment, etc.) 3. Mandate design and selection (whether active or passive) is the final step in our comprehensive outcome-based investment process. Innovative solution Asset allocation Investment strategy Mandate selection Each step in the investment process has been designed to ensure the highest probability of achieving an investor s goal. How we ensure that we deliver on investment outcomes 70% 15% 8% 7% Asset allocation Investment strategy Mandate selection Other Page 10 of 16 investments outcome-based investing 2017
In addition to establishing a robust investment process, we also recognise the importance of quick, timely and effective implementation of investment decisions. In essence, outcome-based investing is about constructing portfolios that will maximise the probability of meeting an investor s goals, while managing to the investor s specific risk tolerances. Increased probability of achieving your investment goal For an outcome-based investor targeting a specific objective over a specific investment horizon, risk can and should be defined very differently. For such an investor the risk of capital loss, preservation of the purchasing power of capital, value at risk, shortfall probabilities relative to the goal or a combination of the above is a lot more important and relevant than simply outperforming an arbitrary market benchmark. Outcome-based investing provides a systematic approach to blending some of the world s finest active and passive funds to achieve a reduced level of relative volatility, whilst simultaneously ensuring superior consistency of returns. s unrivaled outcome-based investing legacy and unique investment approach allows us to ensure uncompromised consistency in delivering on the needs of investors. Outcome-based investing is all about putting the investor s needs first Enhanced Growth Plus Fund of Funds* FTSE/JSE Shareholder Weighted (SWIX) Top 40 Index Improved probability of achieving your goal Join the investment revolution is already helping over 10 000 investors pursue their unique investment goals instead of only delivering returns in line with an arbitrary market benchmark. Source: Investments *Formally Factor 7 Fund of Funds investments outcome-based investing 2017 Page 11 of 16
Outcome-based Solutions Introducing South Africa s first truly outcome-based solution range We recognise how difficult it is for investors to choose investments that are capable of delivering on their goals. We also understand that their needs and preferences are unique and that they are investing for something far more important than simply outperforming a generic market benchmark. In response, we have developed a world-class range of outcome-based solutions. These purpose built solutions comprise of a leading range of outcome-based collective investment schemes, guaranteed investments, personal share portfolios and structured products. Each of these solutions have been skilfully crafted to maximise the probability of achieving an investors unique investment goal(s). Our comprehensive range of outcome-based solutions has been simplified and structured around our investors needs. Investment need Capital protection and liquidity Capital protection Stable income Real growth with capital protection Real growth Asset class exposure Cash and cash equivalent solutions Multi-asset fixed income solutions Absolute return solutions Multi-asset growth solutions Single-asset growth solutions Money market Income Absolute return range Enhanced growth fund range Enhanced equity Collective investment scheme range Enhanced cash Target growth fund range Core equity Listed property Other solutions Deferred maturity Guaranteed endowments Life annuities Structured product range Direct property SP Reid Securities Return objective STeFI + 0.5% to + 1.0% STeFI + 2.0% CPI + 2.0% to + 5.0% CPI + 3.0% to + 7.0% Market relative Investment horizon Short term Medium term Long term Did you know? For your convenience, this document has been embedded with an innovative QR code TM. Please use any mobile device to scan this QR code TM to acquire further information on s comprehensive Outcome-based Solutions. Page 12 of 16 investments outcome-based investing 2017
Outcome-based Solutions local portfolio range The Outcome-based Solutions portfolio range provides you with a comprehensive range of collective investment solutions that optimally blend active and passive mandates to provide you with consistent and robust real growth (after-inflation) investment returns within a predefined level of volatility. Investment need Capital protection and liquidity Income Real growth with capital protection Long term capital growth Asset class exposure Cash and cash plus solutions Multi-asset fixed income solutions Absolute return solutions Multi-asset growth solutions Single-asset growth solutions Portfolio names Money Market Fund Diversified Income Fund Defensive Growth Fund Enhanced Cautious Growth Fund of Funds Enhanced Stable Growth Fund of Funds Enhanced Diversified Growth Fund of Funds Enhanced Growth Fund of Funds Enhanced Growth Plus Fund of Funds Real Growth Equity Fund Enhanced Yield Fund Target Cautious Growth Fund of Funds Target Stable Growth Fund of Funds Target Diversified Growth Fund of Funds Target Growth Fund of Funds Target Growth Plus Fund of Funds Real Growth Core Equity Fund Real Growth Property Fund Investment objective Stefi +0.5% Stefi +1.0% to +2.0% CPI +3.0% net of fees CPI +2.0% net of fees CPI +3.0% net of fees CPI +4.0% net of fees CPI +5.0% net of fees CPI +6.0% net of fees Market relative Risk continuum Cautious Moderate Aggressive Investment horizon Short term Medium term Long term Did you know? For your convenience, this document has been embedded with an innovative QR code TM. Please use any mobile device to scan this QR code TM to acquire further information on s comprehensive Outcome-based Solutions portfolio range. investments outcome-based investing 2017 Page 13 of 16
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Why? As South Africa s leading outcome-based investment manager, helps thousands of people and some of the country s largest institutions achieve their investment goals. offers the following Outcome-based Solutions: A comprehensive range of innovative solutions, including the Enhanced and Target Fund of Fund ranges. Enhanced certainty through a sophisticated range of guaranteed solutions including the Growth Enhancer. Access to a wide range of share portfolios through Securities. The ability to partner with financial advisory practices to build bespoke and scalable outcome-based solutions through Investment Consulting. Want to know more? Contact your Financial Adviser or call us on 0860 546 533 www.momentum.co.za Disclosure Collective investment schemes in securities are generally medium- to long-term investments. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. The manager does not provide any guarantee, either with respect to the capital or the return of a portfolio. For certain portfolios the manager has the right to close these portfolios to new investors to manage them more efficiently, in accordance with their mandates. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. The collective investment scheme may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. Different classes of participatory interests apply to these portfolios and are subject to different fees and charges. A schedule of fees, charges and maximum commissions is available on request from the manager, or is available on the website (www.momentum.co.za/collectiveinvestments). Forward pricing is used. MMI Holdings Limited is a full member of the Association for Savings and Investment South Africa. The complaints policy and procedure and the conflicts of interest management policy are available on Collective Investment s (RF) (Pty) Ltd website at (www.momentum.co.za/collectiveinvestments). Associates of the manager may be invested within certain portfolios and the details thereof are available from the manager. Foreign securities within portfolios may have additional material risks, depending on the specific risks affecting that country. A money market portfolio is not a bank deposit account. The price of a Money Market Fund participatory interest is targeted at a constant value. For money market portfolios the total return to the investor is made up of interest received and any gain or loss made on any particular instrument, and in most cases the return will merely have the effect of increasing or decreasing the daily yield, but in the case of abnormal losses, it can have the effect of reducing the capital value of the portfolio. For money market portfolios excessive withdrawals from the portfolio may place the portfolio under liquidity pressures, and in such circumstances a process of ring-fencing of withdrawal instructions and managed pay-outs over time may be followed. The Money Market Fund yield illustrated in our minimum disclosure documents and quoted daily in the press is the 7-day rolling effective yield. Bond and income yields quoted in the press are historical yields based on distributions and income accruals calculated monthly while those quoted in the Weekly Income Fund Yield Summary are current running yields calculated weekly. A fund of funds is a portfolio that invests in portfolios of collective investment schemes that levy their own charges, which could result in a higher fee structure for the fund of funds. The investment manager of the portfolios pertaining to this brochure is Outcome-based Solutions (Pty) Ltd, registration number 2004/023064/07, address 268 West Avenue Centurion 0157 is an authorised financial services provider in terms of Section 8 of the Financial Advisory and Intermediary Services Act, 37 of 2002 (FAIS Act), as amended, FSP licence number 19840. This information is not advice as defined and contemplated in the FAIS Act. Outcome-based Solutions (Pty) Ltd is also registered as an administrator in terms of Section 13B of the Pension Funds Act, registration number 24/401. Investments (Pty) Ltd 268 West Avenue Centurion 0157 PO Box 7400 Centurion 0046 www.momentum.co.za/collectiveinvestments Registration number: 2010/021352/07 Terms and conditions apply., a division of MMI Group Limited, an authorised financial services and credit provider. www.momentum.co.za