September 16, 2021

Default investment strategies – balanced or specialist construct multi-manager solutions?

By Marcus Rautenbach, Principal Investment Consultant

In the article One lesson from 2020, issued in December 2020, we contrasted the investment results of multi-manager funds that use a balanced fund construct (i.e. combining more than one balanced solution) with multi-managers that use a specialist fund construct (i.e. using best-of-breed managers for individual asset classes with the top 10 balanced solutions in South Africa). All the funds used in the comparison complied with Regulation 28 in Annexure B of the Pension Funds Act, 1956 (No. 24 of 1956). Multi-manager funds are often used in default investment strategies by commercial umbrella retirement funds.

Our question was whether any one of the three categories of funds outperformed or underperformed consistently.

Our findings, based on investment results from July 2011 to June 2020, were that:

  1. Specialist construct multi-manager funds were likely to outperform over the long term;
  2. Balanced construct multi-manager funds were likely to produce relatively better results during periods of low returns or distress in financial markets;
  3. Funds that include tactical asset allocation shifts do not necessarily produce better results, but are able to better manage and reduce risk; and
  4. Members who wish to maximise investment returns would do better by investing in specialist construct multi-manager funds, but members who are more risk-averse would do better in balanced construct multi-manager funds.

The final 12-month period in the analysis ended on 30 June 2020, shortly after the sharp Covid/lockdown-induced contraction in financial markets.

Our question today is whether the same conclusions are supported by analysis one year later and after the robust recovery in financial markets? Does the strong recovery change the results of our analysis?

In our analysis, we calculated the 12-month investment returns to June each year for a range of funds (gross of fees), and the 12-month risk (standard deviations) for the same periods and the same funds. The monthly investment returns were obtained directly from each financial services provider.

We used these values to calculate the average investment return and risk for balanced construct multi-manager solutions, specialist construct multi-manager solutions and the top 10 balanced solutions for each 12-month period to June. Our analysis covered the period from 1 July 2011 to 30 June 2021. The funds included in the analysis are:

Balanced construct multi-manager funds Specialist construct multi-manager funds Top 10 balanced funds
Alexander Forbes Performer Momentum Classic Factor 7 Absa Global Balanced
Simeka Wealth Creation Old Mutual m|m Inflation Plus 5 – 7% Allan Gray Life Global Balanced
SMM Select Balanced Sanlam Accumulation Coronation Global Houseview
Stanlib Multi-Manager Balanced SMM70 Foord Global Balanced
Sygnia Signature 70 Ninety One Global Balanced
OMIG MacroSolutions Profile Balanced
Prudential Global
PSG Balanced
Sanlam Balanced (SUF)
Stanlib Global Balanced


The compound growth of a R100 investment in the average of:

  • balanced construct multi-manager funds resulted in a market value of R216 on 30 June 2021;
  • specialist construct multi-manager funds resulted in a market value of R230 on 30 June 2021; and
  • the top 10 balanced funds resulted in a market value of R220 on 30 June 2021

Despite underperforming during the difficult conditions that prevailed in the 12-month periods to June 2016, 2017 and 2020, multi-manager funds with a specialist construct philosophy performed better than the top 10 balanced funds and multi-manager funds with a balanced construct philosophy over the entire measurement period. This confirms the first conclusion reached in our 2020 analysis.

The 12-month risk/return scatter plot confirms that specialist construct multi-manager funds outperform balanced construct multi-manager funds and the top 10 balanced funds in fast-trending periods (e.g. 12 months to June 2013, 2014 and 2021), and that balanced construct multi-manager funds outperform when difficult conditions prevail in financial markets (e.g. 12 months to June 2016, 2017 and 2020). This confirms the second conclusion reached in our 2020 analysis.


The 12-month risk/return scatter plot also shows that, with the exception of the 12-month period to June 2012, balanced construct multi-manager funds achieved their investment returns at lower levels of risk, which confirms the third conclusion in our analysis in 2020.

With the initial conclusions of the 2020 analysis confirmed, it stands to reason that the final conclusion — members who wish to maximise growth could consider specialist construct multi-manager funds and members who wish to reduce risk could consider balanced construct multi-manager funds — is also confirmed.

So, what does this mean?

  • Our analysis in 2021 confirms the conclusions reached in our 2020 research.
  • Market conditions may fluctuate, but retirement fund members who save over the long term are likely to obtain a superior investment return when investing in specialist construct multi-manager funds.
  • In periods of financial stress, balanced construct multi-manager funds often outperform specialist construct multi-manager funds.
  • During these periods of financial stress, members are often concerned about their retirement savings, requiring that steps be taken to limit losses. Such steps, if actioned, would often be taken at the worst time and condemn those members to an inferior outcome.
  • It is not practical for retirement funds’ default investment strategy to change on a regular basis to benefit from either outperforming specialist construct multi-manager funds, or outperforming balanced construct multi-manager funds.
  • The nature and character of each retirement fund’s membership is unique. For some retirement funds, based on membership characteristics, faster-growing specialist construct multi-manager funds are ideal as the default investment strategy; and for other retirement funds, based on their membership characteristics, the slower growth and lower risk of balanced construct multi-manager funds may be suitable as the default investment strategy.

There is no single solution that is right for everyone, and the Boards of Trustees of defined contribution retirement funds must ensure that the default investment strategies employed by these funds remain appropriate for the members whose retirement funding contributions and retirement savings are or will be invested in the default investment portfolio(s).