Regulation 28 has long been a frustration of many retirement fund investors with the Financial Services Board having applied a “one size fits all” approach. That means that within Regulation 28 confines, a 20-year-old investor in a retirement fund is treated the same way as a 64-year-old investor with respect to the maximum exposure that they can have to growth assets. This is insane!
In short, regulation 28 limits the exposure that an investor can have to certain of the asset classes. Equity exposure is limited to a maximum of 75% of the fund and property to 25%*. Reg 28 also limits offshore exposure to 25% of the investment.
And while it has been possible (in theory mostly) to construct an “aggressive” retirement portfolio with 75% in equities and 25% in property, the reality is that this has required frequent rebalancing in order not to fall foul of the regulation.
The resulting “default” has been for investors to make use of “balanced” or “managed” funds. Unfortunately for younger (and more adventurous) investors, who may have a 30+ year view on their retirement money or who are just wanting more growth, most balanced fund managers manage their portfolios with a 5-7 year time horizon because this is how they are measured (it makes no sense).
The result of this is that it unusual to find a balanced fund with more than 65% in equities and 5-7% in property. Over a 30 year term, this conservative approach could seriously undermine the returns that investors can achieve – further compounding the issue of most South Africans not being able to retire with sufficient funds.
Things were not looking all that attractive in the Reg 28 space…until recently, that is, when Nedgroup launched their Core Accelerated Fund.
The Core Accelerated Fund is the latest addition to their Core (passive) range of funds that is managed by Jannie Leach and his team. It is reg 28 compliant and has a static asset allocation of 75% in equities and 15% property at all times with the balance in bonds/cash. That’s 90% in growth assets at all times! The fund will also have 25% offshore exposure (as long as the legislation permits this). And the best thing about the fund is that being a passive fund, it has a very low annual fund fee of 0.35% (this is as low as 0.25% if you access it via one of the LISP platforms).
So now it is possible to have a high growth oriented retirement fund with an all-in annual fee of less than 1%**.
This fund gets a big thumbs up!
*This includes 25% offshore exposure.
** this includes the fund, admin and advice fees.