By Shawn Philips, Glacier Research
We face challenging times with the rise in Covid-19 infections and the strain it is placing on the global economy. It’s understandable that clients are hesitant to stay invested in the markets when their investment performance is at the mercy of an exogenous, random shock like Covid-19. The Moody’s ratings downgrade to sub-investment grade on Friday, 27th March, could also not have come at a worse time.
A rapid change in market sentiment
Sentiment changed rapidly over the past few weeks, with two overwhelming issues creating fear in the market. The first issue has been the coronavirus in China and the second has been the sharp fall in oil prices due to the price war between Saudi Arabia and OPEC. Given that we live in an interconnected world, the impact of the coronavirus has been far reaching. The concerns are around the potential impact on global growth and whether this will lead to a global recession, as well as how other countries will contain the virus. As a result, volatility has spiked and we have seen a flight to safety. Year-to-date in rand terms (1 January 2020 to 13 March 2020), global equities surrendered 6.39%, while local equity gave up 22.08% and local bonds weakened by 3.97%. The only place to hide has been cash, with SA cash firming 1.36%.
During times of uncertainty clients want security, and generally feel more comfortable investing in the market if some protection is offered.At Glacier by Sanlam, we have solutions that cater for clients’ needs during periods of market distress, such as the optional unit price guarantee on select funds in the Sanlam Wealth Edge Endowment Plan. The Wealth Edge Endowment Plan is underwritten by Sanlam Developing Markets Limited and administered by Sanlam Life.
The Sanlam Wealth Edge Endowment Plan offers optional unit price guarantees on a select range of funds, providing some downside protection which is likely to give investors confidence to take on more to grow their wealth over the long term.
Unit price guarantees on the Wealth Edge Endowment Plan
Guarantee on select cautious funds:
- 95% of highest unit price attained over the five-year investment term
- At least 100% of initial unit price
Guarantee on select moderate funds:
- 90% of highest unit price attained over the five-year investment term
- At least 100% of initial unit price
Guarantee on select moderate aggressive funds:
- 80% of highest unit price attained over the five-year investment term
The value of the optional unit price guarantee
There are six funds in the Wealth Edge Endowment Plan for which optional unit price guarantees are available. These funds range from cautious to moderate aggressive funds with the guaranteed level being risk profile specific. The table below displays all the available funds on which the optional unit price guarantee can be selected, and their risk level.
|Funds with the optional unit price guarantee and their risk level|
|Allan Gray Stable Fund (cautious)|
|SIM Inflation Plus Fund (cautious)|
|Nedgroup Investments Opportunity Fund (moderate)|
|Coronation Capital Plus Fund (moderate)|
|Allan Gray Balanced Fund (moderate aggressive)|
|SIM Balanced Fund (moderate aggressive)|
While investors who have selected the guarantee will experience the performance and the volatility of the underlying collective investment fund over the five-year term, the guaranteed unit price will be used to calculate the value of the investment at maturity.
To highlight the value of the unit price guarantee, we will use the Nedgroup Investments Opportunity Fund as an example. The performance from 1 July 2019 to 13 March 2020 and the guarantee can be seen in Figure 1 below.
Today is 13 March 2020. On 1 July 2019, Client A invested fully in the Nedgroup Investments Opportunity Fund with the optional guarantee.
|Initial unit price at inception (01/07/2019)||Guaranteed initial unit price* (03/07/2019)||Highest unit price attained (14/01/2020)||Current unit price (13/03/2020)||Guaranteed unit price|
* The guarantee commences two working days after the plan inception
The guarantee on the Nedgroup Investments Opportunity Fund (a medium equity fund) is the highest of:
- 90% of the highest unit price since the guarantee was selected (90% * 105.90 = 95.31)
- 100% of the initial unit price (when the guarantee was selected) (100.31)
- the current unit price (91.06)
The guaranteed unit price would therefore be 100.31.
The fund’s performance over the period 01.07.2019 to 12.03.2020 was -9.22%. While all clients invested in this fund would have experienced the decline in performance, those who had the optional unit price guarantee in place, would have some peace of mind: At 13 March 2020 the guaranteed unit price for their investment in the Nedgroup Investments Opportunity Fund would have been 100% of the initial unit price, which was 100.31. For those clients that did not select the guarantee, their unit price will be 91.06.
The unit price guarantee offered on certain funds in the Wealth Edge Endowment goes a long way in providing peace of mind for investors during times of market volatility. While all clients invested in a specific collective investment fund will experience both the upswings and the downswings of the fund during their investment term, clients who have selected a unit price guarantee will enjoy some protection during market falls, and they will get to take part in the rally as the market rebounds.
It is important to note that the unit price guarantee is only applied at the end of the five-year initial investment term or at death to calculate the investment value.
For more detail on how these guarantees work, please refer to:
Please contact your Glacier representative to discuss the opportunities available through our Wealth Edge Endowment Plan.