Flexible funds give fund managers the chance to build a portfolio which truly represents their best investment view. Yet they have not taken off — the domestic flexible sector has just R60bn under management compared with R480bn in the high-equity sector. Flexible funds do not qualify under regulation 28 of the Pension Funds Act, so they cannot be used on a standalone basis in a retirement annuity. But many investors have ignored their strengths: they allow fund managers to express their best asset allocation views, and there is extensive research to show that significantly more value is added through asset allocation than stock selection. And balanced funds are unashamedly peer group funds competing in a league table; flexible funds usually have a real-return benchmark, typically inflation plus 5% or 6%. They are favoured by hedge fund managers who want to set up a long-only fund as they offer absolute and not relative returns. In fact, most hedge fund managers have found that ther...

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