Dear reader

In this newsletter, we provide the Benchtest for October 2010, the Benchmark September quarterly investment report, that is a must read for anyone in the process of selecting or reviewing the appointment of investment portfolio managers. We remind you of an important change in the composition of the Benchmark Default portfolio and attach a few very relevant, topical and interesting media snippets that should contain something for everyone who has an interest in the world of finance.

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Regards

Tilman Friedrich

Tilman Friedrich's Industry Forum

BENCHTEST MONTHLY 10.2010

In October the average prudential balanced portfolio returned 1.99% (September 4.89%). Last month’s top performer, Prudential, managed to retain top spot (3.08%), worst performance once again delivered by Allan Gray (0.62%). In very broad terms, Allan Gray had around 9% lower exposure to onshore equities and a 5% lower exposure to bonds, with a 9% higher exposure to offshore asset and a 5% higher exposure to cash, relative to the average manager. This only explains roughly 0.3% of it’s under performance, the remainder of around 1% requiring a more detailed investigation.

For pension funds, a conservative balanced portfolio with a fair spread across equities, bonds and property and a high foreign exposure remains our call for now, to be on the safe side should the Fed’s policies not produce the results hoped for. No doubt this will be a bit painful but prevention is always better than cure!

For further analyses and our views, click here...

BENCHMARK QUARTERLY – 09.2010

The ardent reader of our monthly performance reviews is likely to become ever more dissatisfied with the performance of Allan Gray. Others who had chosen Stanlib will now be very pleased with their manager selection. No doubt the pain and the pleasure will rub off on your self confidence regarding the selection of asset managers. Coincidentally, you can read up more on what you should be focusing on when you select an investment manager in ‘Selecting a Fund Manager’ below.

Before you reach any conclusion regarding your skill or lack of it, firstly ask yourself, on the basis of what factors you chose your managers. Are these factors still relevant? If they are, chances are that you are still with the right manager. Of course, the manager may since have changed his philosophy. So do you know why your manager has under- or outperformed and can you determine whether he has indeed changed his philosophy? This should give you a better indication whether you are still with the right manager. And, we trust you are not with your manager purely because of his past performance! Refer to our quarterly investment report for a detailed analysis of a number of the most popular managers.

BENCHMARK RETIREMENT FUND – CHANGES TO THE DEFAULT PORTFOLIO

For employers who participate in the Benchmark umbrella fund and are invested in the ‘Default Portfolio’, it is important to be aware that this portfolio has a more conservative mandate than the typical prudential balanced portfolio. This portfolio aims to minimise negative returns and currently has a long-term return objective of inflation plus roughly 3%, after fees.

To achieve a reasonable income replacement ratio of 2% per year of service, the net contribution towards retirement by both, member and employer should be roughly 16% of remuneration at this return objective.

However a review of contribution rates of employers participating in the Benchmark Retirement Fund has shown that most participating employers do not contribute at a rate required to produce a reasonable outcome at retirement. The trustees of the Fund have therefore resolved to replace the Metropolitan Absolute Return portfolio with Allan Gray from 1 January 2011. This is expected to raise the long term real investment returns to around 4% and reduce the required rate of contributing towards retirement by 2% to roughly 14%.

INTERESTING MEDIA SNIPPETS

Selecting a Fund Manager

Nic Andrews, head of Nedgroup Investments in SA, provides some authoritative insight into what he considers important attributes of a successful fund manager in this article…

Changes to the South African Estate Duty Act

If you have an interest in the South African estate duty regime, the information in this article will update you on some important changes.

A Winning Draw Down Strategy for Pensioners

“Pensioners with investment linked annuities should not try to outsmart the market in structuring a monthly income”, is the recommendation based on a study with a 20 year time frame. This article was first published in Personal Finance magazine, a publication of Independent Newspapers.

Is the Fed Making it up with the new Stimulus?

Although remote to our environment, this view of the Fed’s latest quantitative easing programme by Caroline Salas and Tom Keene that appeared in Bloombergs on 22 October, may be of interest to some readers.

An Alternative Take on Umbrella Funds: Is this the Funding Vehicle of the Future?

As SA moves towards a new model of retirement fund and savings delivery, its success will be massively dependent on its distribution and implementation mechanism. At present, the umbrella fund model appears to be the most viable option – or so it seems, as Anne Cabot-Alletzhauser surmises in her deliberation in September 2010 Pensions World.

A Pension Investment Shake up Looms in SA

Regulation 28 has been left behind by modern investment product development and an altered exchange control regime. This regulation is now under review as this article from Sharenet reports.

Charlotte Drayer's Administration Forum

PAYMENT OF PENSIONS

Once the pensions have been purchased, the regular pensions will commence. Wherever possible, banking details for direct transfer into the pensioner’s account should be provided. Pensions are taxed as income and in some cases other deductions such as medical aid contributions will be made. Tax certificates are provided each year, after the end of February.

Once a year, a certificate of existence is sent out to the pensioner in order to establish that the pensioner is still alive. The pensioner must go to a Commissioner of Oaths (Police station, Bank Manager, Medical Practitioner, Minister of Religion, Justice of the Peace) and provide proof of identity. The Commissioner of Oaths must then certify that the pensioner is living and has appeared before him/her in person, by signing and stamping the certificate of existence. The signed and stamped certificate must be returned to the pension provider without delay to prevent suspension of the pension payments. Should the certificate of existence not be returned before the date advised, pensions will be suspended and will only recommence once the duly signed and stamped certificate of existence has been provided.

It is important to provide contact details to the service provider who pays your pension, and to advise as soon as possible, should these change, so that the certificate of existence is mailed to the correct address and is received in time. Often a lump sum benefit may become payable upon the death of the pensioner. Pensioners should therefore review their beneficiary nomination once a year and advise the pension provider who such benefit should be paid to. Remember that all legal and factual dependants have a first claim on any such benefit that may become payable, before you nominate a non dependant.

PAYMENT OF DEATH LUMP SUMS FOR THE BENEFIT OF MINOR DEPENDENTS

Trustees are often confronted with the problem of establishing who is the guardian of a minor dependant. Social workers at Child Welfare Services (tel 22735) of Ministry Gender Equality and Child Welfare can be approached to prepare a report on who the guardians are.