Remove the cost of a fund manager

2012-06-16 09:44

Index tracking or passive investing is the cheapest way to invest simply because it removes the cost of a fund manager.

A fund manager actively selects shares to include in an investment while a tracker fund simply tracks the average return of the market.

Apart from reduced costs, the argument in favour of index tracking is that over a 20-year period less than 5% of active managers actually out-perform their asset class benchmarks.

David McCarthy, special adviser to the national Treasury on retirement reform, believes index tracking is the best option for a retirement product as over a long period of time it is difficult for a single fund manager to consistently outperform the market especially if they have to first cover their costs.

In its recent discussion document on retirement reform, Strengthening Retirement Savings, Treasury has indicated that it would like to see retirement products with costs of less than 1% a year.

There are no actively managed retirement annuities in the market that can meet that target. In fact, most cost around 2% to 3% a year.

However, there are index tracker retirement annuities that meet these requirements.

10X Investments
10X Investments (pronounced tennex) has a balanced tracker portfolio, which can be used for a retirement annuity or preservation fund, and provides a life stage solution.

This means that the portfolios are based on your age and years to retirement.

The longer your time to retirement, the higher the allocation to equities and as you get closer to retirement the portfolio is adjusted, reducing exposure to equities and increasing cash and bonds in order to provide capital protection.

A 10X retirement annuity will cost you less than 1% a year and there are no adviser fees.

If you have a financial adviser who recommends 10X, you would pay the adviser yourself for the advice provided.


Old Mutual
2Old Mutual Unit Trusts currently offers two low-cost long-term investment portfolios within the 1% cost structure targeted by national Treasury.

The Old Mutual Rafi 40 Fund is an enhanced index-tracking fund that takes into account cash flow, sales, dividends and book value in constructing a portfolio of 40 stocks.

The fund’s annual fee is 0.86% and the total expense ratio is 0.88%.

Investors can also consider the Old Mutual Top 40 Fund – exposure to the largest 40 firms on the JSE.

Its yearly service fee is 0.68% and the total expense ratio 0.73%.

To adhere to regulation-28 requirements for retirement investments, investors can include 25% Money Market in the portfolio, further reducing the total cost to the investor.

By combining 75% Old Mutual Top 40 and 25% Old Mutual Money Market the investor can reduce the total cost to 0.65%.

These funds can be used in Old Mutual Unit Trusts retirement product wrappers including the retirement annuity, preservation fund and living annuity.

There is no product cost with investing in the retirement products.

The only cost incurred by the investor is the underlying fund costs.

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