The Simeka portfolio range, five years later
Proof that low governance budget solutions can be competitive and benefit members of retirement funds
Investors have to work much harder today, to achieve incremental improvements in investment returns
Institutional investors, including retirement fund trustees, are faced with complexity in the external economic and investment environment when setting or reviewing investment strategies for the long term. While trustees may strive for solutions aimed at providing compelling value-for-money investment outcomes, one of the significant constraints they face is their investment governance budget. Investment Governance Budget refers to the collective expertise and time available within the board of trustees, for them to directly engage in investment matters of varying complexity. Some boards of trustees may opt to have a high governance budget, which implies that they retain a significant number of investment functions, while others may instead choose to have a low governance budget, thereby significantly outsourcing investment functions. Ultimately, trustees are responsible for investment outcomes irrespective of the level of investment governance budget selected, and therefore need to ensure they partner with the right investment professionals.
Low Governance Budget Solutions can provide compelling value for money investment outcomes
With over R178 billion in assets under advice, Simeka works with institutional investors with varying investment governance budgets. Our research and experience indicate that trustees don’t have to retain complexity in how they carry out investment functions within their funds, to achieve favourable investment outcomes. Rather a significant portion of their investment functions can be outsourced. All portfolio management decisions are taken by a Joint Investment Committee (JIC) that comprises senior members of the Simeka Investment Consulting and Sanlam Investments Multi-Management (SIMM) teams.
The range of portfolios is an example of a low investment governance budget solution providing compelling value-for money investment outcomes. These portfolios celebrated their 5-year anniversary in June 2021. All being multi-asset portfolios, the range consists of a moderately aggressive portfolio (Simeka Wealth Creation), moderate risk portfolio (Simeka Wealth Preservation) and a conservative portfolio (Simeka Capital Preservation).
The solutions have provided investors with good value for money over various periods ending 30 September 2021, as illustrated in the table below.
|Portfolio and Benchmark||Year to date||1 year||3 years (p.a.)||5 years (p.a.)|
|Simeka Wealth Creation||16.70%||25.10%||10.26%||8.90%|
|Strategic Asset Allocation (SAA) Benchmark||12.70%||20.01%||9.69%||7.92%|
|Excess return over SAA benchmark||4.00%||5.10%||0.57%||0.98%|
|Peer Group Median Performance||14.86%||22.48%||8.37%||7.80%|
|Excess return over peer group performance||1.84%||2.62%||1.89%||1.10%|
|Simeka Wealth Preservation||13.11%||19.21%||9.19%||8.36%|
|Strategic Asset Allocation (SAA) Benchmark||10.39%||16.54%||8.78%||7.54%|
|Excess return over SAA benchmark||2.72%||2.68%||0.41%||0.81%|
|Peer Group Median Performance||10.76%||15.27%||8.92%||8.01%|
|Excess return over peer group performance||2.35%||3.95%||0.27%||0.35%|
|Simeka Capital Preservation||10.04%||14.31%||7.95%||7.70%|
|Strategic Asset Allocation (SAA) Benchmark||8.11%||13.12%||7.83%||7.12%|
|Excess return over SAA benchmark||1.92%||1.19%||0.13%||0.57%|
|CPI + 3% p.a.||6.65%||7.89%||7.11%||7.40%|
|Excess return over CPI + 3%||3.39%||6.42%||0.84%||0.29%|
The importance of setting a challenging benchmark
Setting an appropriate strategic asset allocation is one of the most important long-term investment decisions trustees need to make. A fund’s strategic asset allocation should represent a “passive alternative portfolio” that is used as a reference point (benchmark) to measure the extent to which value is derived by appointing active asset managers to implement the investment strategy.
The strategic asset allocation benchmarks we set for the Simeka range of portfolios have proven to be very tough benchmarks to beat over the last five years, since the benchmarks themselves have delivered a better return compared to active investment manager peers. However, the Simeka portfolios have outperformed the challenging respective strategic asset allocation benchmarks and, by implication, peers over a 5-year period. In reviewing the performance of these portfolios, we believe it is important to also consider the risk-adjusted benefits – as indicated in the scatter plot below, which represents similar risk-profiled portfolios in comparison to the Simeka Wealth Creation portfolio.
Simeka portfolio performance over rolling 3 year periods
Benefits of using a multi-facetted team of industry professionals
We continuously seek to add value to our clients in these solutions and will partner with the best service providers to do so. At present, the portfolios are managed by a Joint Investment Committee (JIC) that comprises senior members of the Simeka Investment Consulting and Sanlam Investments Multi-Manager (SIMM) teams. There is also representation from Alexander Forbes Investments on the JIC, which also provides the investment platform for the portfolios.
In designing the range of portfolios, key principles relating to our investment advice philosophy are considered, including the following:
- The portfolios need to meet the criterion of delivering superior investment performance for clients with a low investment governance budget, and at the same time the structure needs to be flexible so that the portfolios may be used as a foundation to build bespoke solutions to suit our clients’ needs.
- The portfolios are risk-profiled and outcome-based solutions with real return targets (CPI+), which speaks to members’ need for guidance and their ability to take on risk.
|Investment Portfolio||Investment Objective|
|Wealth Creation||CPI plus 6% over a 6-year rolling period|
|Wealth Preservation||CPI plus 4.5% over a 4-year rolling period|
|Capital Preservation||CPI plus 3% over a 2-year rolling period|
- The portfolios offer a solution with multiple high-conviction managers utilising flexible asset allocations to local balanced managers and specialist active and passive building blocks to complement the portfolio construction once the strategic asset allocations have been determined.
In the Wealth Creation portfolio:
- We start by making use of local balanced managers. These managers offer diverse strategies, styles and asset exposures to provide for a less volatile return profile without restricting upside potential. However, we do not believe they have a superior advantage for offshore investments.
- When considering offshore exposure within the framework of Regulation 28, we believe an equity bias is ideal to enhance the growth exposure, and in a world of “lower for longer” interest rates, it is more valuable compared to international bonds.
The Capital Preservation portfolio is absolute return in nature, meaning that preserving capital is a high priority while still aiming to participate as much as possible in up markets.
- This produces consistent investment returns that protect against down markets while maintaining purchasing power and growing invested capital. So, investor stress and anxiety are reduced through a smoother return profile and consistent, inflation-beating returns irrespective of the business cycle. Members who retire during a down period are in a more favourable position when invested in an absolute return fund, because they are better off than the market due to capital protection at any given point.
The Wealth Preservation portfolio is made up of equal allocations to the abovementioned Wealth Creation and Capital Preservation portfolios.
Low investment governance budget solutions can provide compelling value-for-money investment outcomes for investors such as retirement funds. The Simeka portfolios provide good value, having outperformed their respective strategic asset allocation benchmarks as well as their peers, which lagged the challenging benchmarks. The portfolios are managed by a Joint Investment Committee consisting of Simeka, Sanlam Investments Multi-Manager and Alexander Forbes representatives. The JIC members formally meet to review the portfolios on a regular basis. The JIC will continue to make value-adding changes where necessary and update current and prospective investors on the changes made.