Navigating turbulent retirement investment markets

New year, new regulations, new trends—the retirement industry is going to be a busy place in 2018.

Retirement fund trustees have the unenviable task of navigating through a myriad of complex issues in managing their funds’ investments and growing pressure to help employees with meaningful retirement preparedness.

Aside from market behaviour, they also have to deal with the added complexity of understanding the position of their selected asset managers relative to other managers and be able to explain to members why their selected managers were, or were not, exposed to a specific market segment or stock.

Eric Mtshweni, Director & Investment Consulting Head of Ensimini Financial Services, says over the past two months specifically we have seen even more so how many experienced asset managers have struggled to make sense of “the new normal” during the uncertain times we are experiencing. It is therefore unsurprising that many retirement fund trustees have commented that they are ill-at-ease with the mammoth responsibility of setting, implementing and monitoring an appropriate investment policy for their funds.

“It is at volatile times like these that the robustness of investment policy statements as well as the conviction of retirement fund trustees on the suitability of the strategy they implemented to achieve their risk and return objective, are severely tested,” says Mtshweni.

He says retirement funds have been on the receiving end of volatile markets for the past two years and this volatility has caused much anxiety for retirement fund trustees and members, especially those contemplating retirement in the near future.

Many trustees are outsourcing the investment and advice function to specialist consultants who can assist them in analysing both global and local conditions.

Ideally trustees require a partner who can:

· Assist with determining the most appropriate investment risk and return objectives for the members of the fund

· Assist in developing an optimal strategy to achieve the investment risk and return objectives determined

· Assist the trustees in understanding and mitigating the various risks associated with the fund’s investments

· Advise on global trends and how these will impact the South African market

· Be au fait with any legislative changes and advise accordingly

· Help anticipate how changes in the industry and new solutions intersects with opportunity

· Provide solutions that help trustees and members of employee benefit schemes increase efficiencies and build sustainable long-term value

· Assist trustees in communicating directly to members to advise on investment or legislative changes

Mtshweni says that for trustees trying to make sense of complex global and domestic predictions Ensimini remains of the view that market timing as a strategy generally reduces investment returns as opposed to its intent of enhancing it. “Experience has proved that a sound long-term strategic asset allocation strategy is key to ensuring consistent long-term investment performance. While it is important to regularly review your investment strategy, we caution investors against investment strategies driven by sentiment, momentum or market noise.

There is always going to be noise and lots of it. Knowing which noise to listen to remains a very difficult task. The recent case of Capitec is an excellent example of how easily investors react to untested noise. For retirement fund trustees it has never been more critical to seek proper professional advice to help navigate the murky waters of investment decision making,” concludes Mtshweni.