Last Updated on 23/09/2024 by Carl-Peter Lehmann
We’ve often focused on highlighting the best-performing balanced funds in South Africa, which play a crucial role in securing our retirement savings. As the primary vehicle for most South African investments, their performance is essential for achieving a successful retirement. However, it’s equally important to spotlight the funds that consistently underperform relative to their peers. While short-term underperformance can be expected, some funds continue to lag, posing significant risks to your retirement goals if you stay invested in them. In this article, we’ll focus on the five worst-performing big balanced funds (AUM of c. R5 billion+) over the last five years, so you can assess whether they remain the right choice for your portfolio.
Further Reading: The best performing balanced funds for retirement annuities and retirement fund capital
The Risks of Staying in Poor-Performing Funds
It’s easy to assume that once you’ve chosen a balanced fund, you can sit back and let it grow over time. Unfortunately, this passive approach can be detrimental, particularly if your fund is underperforming. While short-term fluctuations are normal, consistent poor performance is a warning sign that shouldn’t be ignored.
The compounding effect makes this particularly concerning. Over time, even slight underperformance can lead to significant shortfalls in the value of your invested capital. This can drastically affect your ability to achieve long-term financial goals, especially retirement. For instance, a fund that consistently delivers returns below the industry average can leave you with a much smaller nest egg than expected, potentially forcing you to delay retirement or lower your standard of living.
Now Read: The Ultimate Retirement Planning Guide for South Africans in 2024
Understanding the Peer Group Context
Balanced funds fall under the ASISA category of SA Multi-Asset High Equity Funds and generally adhere to Regulation 28 investment limits, making them suitable for approved retirement funds like pension funds and retirement annuities. This has made them the most popular investment category in South Africa, housing the majority of our savings. According to Morningstar data, there are approximately 230 retail balanced funds available in South Africa currently, with 176 of them having a 5-year track record. The three largest balanced funds by assets under management (AUM) are the Allan Gray Balanced Fund (c. R195 billion), Coronation Balanced Plus Fund (c. R115 billion), and Ninety One Opportunity Fund (c. R81 billion).
Retail vs Institutional Fee Classes
Balanced funds often have multiple fee classes. Retail fee classes, which are typically the most expensive, are what individual investors usually pay when investing directly. On the other hand, lower-cost institutional fee classes are available to entities like pension funds and DFMs, who invest in bulk and can access these cheaper versions of the fund. When comparing fund performance, it’s important to consider that the performance of lower-fee classes might give a distorted view of how a fund is performing relative to its peers, as these lower costs can enhance returns.
For the purposes of this piece, we are focusing only on retail balanced funds – and according to Morningstar as of 21 August 2024 there are currently 176 with a 5-year track record. The peer group average return is 9.92% per annum. In stark contrast, the top three funds in this category are delivering impressive returns of 14-15% per annum over the same period. For the purpose of this article – we are focusing on the BIGGEST Funds by AUM (c. R5 billion and above) – of which there are approximately 31. There are a number of other poor performing funds that also require scrutinty, but this is a good place to start.
The 5 Worst-Performing BIG Balanced Funds in South Africa
Let’s take a closer look at the five worst-performing big balanced funds, all of which manage assets of close to R5 billion or more, and see how they stack up against the competition.
1. Rezco Value Trend Fund
- 5-Year Annualized Return: 6.52%
- Peer Group Rank: 170/176
- AUM: c. R5 billion
- Fund Performance Insight: The Rezco Value Trend Fund has consistently delivered poor returns remaining a bottom quartile performer pretty much across all time frames, extending up to 10 years.
2. SIM Balanced Fund
- 5-Year Annualized Return: 7.83%
- Peer Group Rank: 160/176
- AUM: c. R7 billion
- Fund Performance Insight: Similar to Rezco, the SIM Balanced Fund has shown consistently poor relative performance across most time frames over the last 10 years.
3. Ninety One Managed Fund
- 5-Year Annualized Return: 8.55%
- Peer Group Rank: 143/176
- AUM: c. R30 billion
- Fund Performance Insight: The last 5 years have been particularly disappointing for the Ninety One Managed Fund, though it shows improvement on a relative basis when looking at 7 and 10-year periods, where it improves to a 2nd quartile and top quartile performer respectively.
4. Momentum Focus 6 FOF Fund
- 5-Year Annualized Return: 8.79%
- Peer Group Rank: 139/176
- AUM: c. R6 billion
- Fund Performance Insight: The Momentum Focus 6 FOF Fund has been a pretty poor relative performer across most time frames. Its ‘cousin’, the Momentum Focus 7 FOF, while a slightly smaller fund with about R3 billion in assets, has been equally poor.
5. Discovery Balanced Fund
- 5-Year Annualized Return: 8.94%
- Peer Group Rank: 135/176
- AUM: c. R40 billion
- Fund Performance Insight: While the Discovery Balanced Fund has been a poor relative performer over the last 5 years, it does show some improvement when extended to 7-and-10 year time frames, moving up from bottom quartile performance to become a 3rd quartile and 2nd quartile performing fund.
Special Mention: Marriott Balanced Fund of Funds
Marriott is a popular and household name for many retirement investors. And while the fund doesn’t meet the ‘big’ fund threshold of c. R5 billion – it’s still a large fund with more than R2.2 billion of investor capital. And because its performance is so bad, it really needs to be highlighted.
- 5-Year Annualised Return: 5.87%
- Peer Group Rank: 173/176
- Fund Performance Insight: This fund is rooted close to the bottom of the peer group over almost all time frames over the last 10 years.
The Importance of Benchmarking Your Balanced and Retirement Fund Performance
Monitoring the performance of your balanced fund is more than just checking your statements once a year. It’s about actively benchmarking your fund against its peers to ensure it’s performing as expected. The South African market offers a variety of balanced funds, and while the top performers often get the spotlight, it’s equally important to be aware of the laggards—especially those managing significant assets.
Benchmarking helps you identify whether your fund is keeping pace with the market and its peers. If your fund consistently falls into the bottom quartile or even the bottom half, it may be time to reassess your investment strategy. The cost of staying in a poor-performing fund isn’t just lost returns; it’s the opportunity cost of not being invested in a better-performing fund.
What This Means for You
If you find yourself invested in one of these underperforming funds, it’s crucial to understand the implications. Poor performance over an extended period isn’t just a hiccup—it’s a signal that something may be fundamentally wrong with the fund’s strategy, management, or both. Staying in such a fund could mean missing out on the growth you need to secure your financial future.
Now Read: What are some of the Best Balanced Funds for Retirees in 2024?
Closing Remarks: Take Action: Review, Reassess, and Reallocate
The solution isn’t necessarily to jump ship at the first sign of trouble, but to remain vigilant. Regularly review your investment performance, compare it with relevant benchmarks, and reassess your financial goals. If your fund is consistently underperforming, it may be time to consider reallocating your assets to a better-performing fund.
Remember, the goal of investing is to grow your wealth and achieve your financial objectives. Being proactive in managing your investments is key to ensuring that you stay on track, even in the face of underperforming funds.
Now Read: The Extended Fund List of the 20 WORST Performing Balanced Funds Over the Last 5 Years
Carl-Peter Lehmann
Carl-Peter is a Director and Partner at Henceforward with over 20 years experience. He is a CERTIFIED FINANCIAL PLANNER who understands the importance of being in well structured and optimised retirement portfolios to ensure long-term success.
