Innovative approach to investing helps tame market volatility

The JSE has posted its worst quarter since March 2020 amid concern over China’s regulatory crackdown on technology companies such as Tencent, the latest in a string of stark reminders of the ever-present volatility in investment markets.

“Similar extreme volatility brought about by unexpected events as seen during 2020 is likely to continue the move towards money market and income funds that offer protection in the market at the expense of any significant growth,” says Robin McLaurie, head of retail distribution: Smoothed Bonus Funds at Old Mutual Corporate. 

Risk tolerance is an investment term McLaurie says refers to the investor’s ability to endure market volatility. “When investing over the long term, it’s important to be aware of how much volatility you can endure. However, the old maxim that investors need to take the maximum risk by enduring rampant volatility to secure a decent return needs to be interrogated by investors,” he says. 

In addition to reasonable investment risk mitigation strategies such as diversification, investors can enjoy better growth with less market volatility by using innovative investment vehicles. “Smoothed bonus portfolios are investments that offer greater security on the money invested into the portfolio while the returns are distributed to investors over the short-term in the form of less volatile bonuses declared by the life company,” he says.

“These smart solutions aim to provide steady growth and valuable guarantees on a portion of capital and bonuses which offers investors the best of both worlds. Taking this approach makes it possible to take more risk and generate higher returns while managing the volatility.”

He says capital protection offered on Old Mutual CoreGrowth 100 for example, is similar to that of a money market investment. “Due to the built-in guarantee, both the CoreGrowth 100 and CoreGrowth 90 funds guarantee a portion of the investors’ capital and growth.”

“While money markets are mandated to protect capital over a one-year period, CoreGrowth additionally aims to deliver an above-inflation return.” 

CoreGrowth 100 has an additional mandate to deliver a real return of CPI+2.5% over the long term. CoreGrowth 90, meanwhile, is more such as a conservative balanced fund with expected returns of CPI+3.5% over the same period.

A key risk-mitigating feature on CoreGrowth is its guarantee to support Benefit Payment Events. Should another major market event occur, investors, who exit due to Benefit Payment Events, will receive the smoothed fund value and not the underlying value of the portfolio.

“This feature adds a layer of protection to funds which already provide a conservative investment approach and smoothing. In line with this more cautious investment mindset, CoreGrowth offers a haven for investors who also want the benefits of seeing some growth in their investments,” says McLaurie.

“This guarantee makes CoreGrowth a good choice for investors who are risk-averse, worried about losing capital, or reluctant to remain invested through sharp market drops — such as those markets investors now face on the back of developments in China and even the US where the Fed faces some tough decisions about bonds,” he says.

If you’re ready to sleep easy, knowing the value of your investment is protected from market volatility, visit the Old Mutual website, WhatsApp to chat or email retailagp@oldmutual.com

Old Mutual Life Assurance Company (SA) Ltd is a licensed FSP and life insurer.

This article was paid for by Old Mutual.