Last Updated on 23/09/2024 by Carl-Peter Lehmann
The 20 Worst Performing Balanced Funds in South Africa today! We usually like to highlight what’s doing well, focusing on the investment opportunities that exceed expectations. We’ve done this in various pieces that feature the best-performing funds across different categories. However, since retirement funds play such an integral role in helping us achieve financial goals – like securing a successful retirement – it’s equally important to point out the funds that are falling short. After all, underperformance in this area can be just as impactful as a top-performing investment.
Recently, we published a piece on the 5 worst-performing BIG balanced funds in South Africa, where we defined “BIG” as a fund with over R5 billion in assets. In this piece, we’re extending that focus to review the 20 worst-performing balanced funds, irrespective of fund size. Why is this important? Balanced funds dominate the South African retirement planning landscape, both pre-and post-retirement, and attract the bulk of investor capital. However, the harsh reality is that of the 220 or so balanced funds currently available to South African retail investors, only a small proportion are truly deserving of your hard-earned savings. And staying in a poor performing fund can have a huge impact
Further Reading: 5 Worst-Performing BIG Balanced Funds in South Africa
Consistent Underperformance and Its Impact
Out of the 220 or so balanced funds available to retail investors, 177 have a 5-year track record. We’ve used data from Morningstar (as of 11 September 2024) and focused on the retail fund class to provide the most accurate picture possible. Interestingly, some of the names from our previous review of the worst-performing BIG balanced funds appear again in this extended list.
In reviewing the bottom 20 balanced funds over the last five years, it’s evident that consistent underperformance can significantly erode investor returns. While some funds may struggle due to short-term market conditions, sustained poor performance over five years often points to deeper issues within the fund. These may include problems with fund management, ineffective strategy execution, or poor asset allocation.
Across the 177 balanced funds available in the market, the peer goup average 5-year return is 9.63% p.a. However, the funds on this list fall significantly below this benchmark. This performance gap can have a profound impact, especially for long-term investors who depend on balanced funds for retirement savings and other key financial goals.
To put this into perspective, let’s compare the outcomes of a typical investment:
The average return of the 20 worst-performing balanced funds over the last five years is 6.20% (the average money market fund by the way delivered 6.13%) – compared to the overall median return of 9.6%. This isn’t even compared to the top quartile of fund performers, but the difference is stark:
- A R1 million investment compounded over 20 years at 6.20% would grow to R3.8 million.
- A R1 million investment compounded over 20 years at 9.6% would grow to R6.8 million.
That’s a 44% difference over time, which can significantly affect your retirement and lifestyle goals.
The 20 WORST Performing Balanced Funds
Each fund ranked shows its annualised 5-year return, its relative ranking, and the approximate size of the fund currently. There are some prominent names in there and many we’ll admit to never having heard of. But if you find yourself in any of these, it’s worth asking some hard questions of the fund managers and whomever recommended the funds to you.
1. Caleo Balanced FOF
• Performance: 5.24%
• Ranking: 177/177
• AUM: R54 million
2. Noble PP Wealth Creator FOF
• Performance: 5.46%
• Ranking: 176/177
• AUM: R162 million
3. Rezco Managed Plus Fund
• Performance: 5.59%
• Ranking: 175/177
• AUM: R545 million
4. Fibonacci Balanced Fund
• Performance: 6.09%
• Ranking: 174/177
• AUM: R142 million
5. Plexus Wealth Balanced Fund
• Performance: 6.10%
• Ranking: 173/177
• AUM: R250 million
6. Marriott Balanced FOF
• Performance: 6.11%
• Ranking: 172/177
• AUM: R2.2 billion
7. Rezco Value Trend Fund
• Performance: 6.22%
• Ranking: 171/177
• AUM: R4.5 billion
8. Dotport Prudential FOF
• Performance: 6.38%
• Ranking: 170/177
• AUM: R155 million
9. Sasfin Prudential Fund
• Performance: 6.60%
• Ranking: 169/177
• AUM: R324 million
10. Brenthurst Balanced FOF
• Performance: 6.66%
• Ranking: 168/177
• AUM: R141 million
11. Element Islamic Balanced Fund
• Performance: 6.90%
• Ranking: 167/177
• AUM: R113 million
12. Star Balanced Fund
• Performance: 7.06%
• Ranking: 166/177
• AUM: R1.1 billion
13. Affinity CI Growth Fund
• Performance: 7.16%
• Ranking: 165/177
• AUM: R392 million
14. SIM Balanced Fund
• Performance: 7.39%
• Ranking: 164/177
• AUM: R6.8 billion
15. Merchant West Balanced Plus Fund
• Performance: 7.44%
• Ranking: 163/177
• AUM: R323 million
16. IP Prudential Equity Fund
• Performance: 7.48%
• Ranking: 162/177
• AUM: R63 million
17. Nedgroup Inv XS Diversified FOF
• Performance: 7.57%
• Ranking: 161/177
• AUM: R3.2 billion
18. 27four Shari’ah Balanced FOF
• Performance: 7.61%
• Ranking: 160/177
• AUM: R502 million
19. CS Prudential FOF
• Performance: 7.64%
• Ranking: 159/177
• AUM: R502 million
20. Palmyra Balanced Fund
• Performance: 7.70%
• Ranking: 158/177
• AUM: R510 million
It’s important to regularly review your portfolio, including monitoring fund performance relative to peers and appropriate benchmarks. As a further FYI – Balanced Funds typically have a return objective of Inflation Plus 5 – which in the current climate is about 10% p.a. Therefore, considering alternative options with a proven track record of delivering better returns over the long term may be a wise choice for if you’re stuck in underperforming funds.
Potential Conflicts of Interest and the Rise of Advice Firms Creating Funds
A number of the funds in this list are operated by businesses that originated as financial advice firms, which have now branched out into ‘asset management’ – by launching their own funds. This trend can create potential problems for investors. First, asset management is a highly specialized field that requires a distinct skillset from providing financial advice. While it may seem like a natural progression, managing people’s money and life savings requires a different level of expertise and focus. Increasingly, advice firms are creating their own funds because advice fees are coming under pressure, and launching funds can serve as an additional revenue stream. But at what cost?
One of the main concerns is the potential conflict of interest. If you’re an advice firm recommending your own funds to clients, you’re effectively generating revenue not only from your advice but also from the management of those funds. This dual role raises questions about whether the advice given is truly in the client’s best interest or if it’s influenced by the additional income stream from fund management.
At Henceforward, our view is that asset management and the management of people’s money is a very distinct skillset. While we acknowledge the value in using discretionary fund managers (DFMs) to manage portfolios on behalf of clients, we believe that advice firms running and managing their own funds, on which they generate additional revenue, is potentially problematic. It’s crucial for investors to ensure that their financial advisor is acting in their best interests and not being swayed by the prospect of extra fees.
Conclusion
In conclusion, while it’s easy to focus on the top performers, it’s equally important to be aware of the funds that are underdelivering. Balanced funds play a critical role in retirement planning for most South Africans, and long-term underperformance can significantly hinder your ability to achieve financial goals. By regularly reviewing your portfolio and being aware of how your funds stack up against their peers, you can take proactive steps to avoid the costly mistake of staying invested in underperforming funds. Remember, your financial future deserves more than average – seek out funds with a proven track record, strong fundamentals, and management teams that align with your long-term goals.
Now Read: The Best Performing Balanced Funds in South Africa
Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice. While we have taken care to ensure the accuracy of the data and information presented, performance data is subject to change, and past performance is not necessarily indicative of future results. Always consult a qualified professional before making any investment decisions to ensure they align with your personal financial situation and goals.
Carl-Peter Lehmann
Carl-Peter is a CERTIFIED FINANCIAL PLANNER and Investment Professional with more than 20 Years Experience. He is a Director and Partner at Henceforward who is serious about helping his clients achieve optimum investment outcomes.
