TFG Retirement Fund

Investments

When saving money for retirement, it is important to earn as much interest or investment returns as possible. It is therefore very important that your money in the Fund is invested in a suitable manner so that it can earn a reasonable level of investment returns over time.

The Trustees are committed to obtaining maximum investment returns for members, bearing in mind the legal constraints and the risks associated with various investments. They also strive to cater for the needs and requirements of the bulk of the members, and they therefore consult with experts to ensure that this takes place.

How your money is invested

The Fund uses a Life-Stage investment model to gradually move members approaching retirement out of the Active Member Balanced Portfolio.

The Active Member Balanced Portfolio is designed for members who are still some years away from retirement, and can therefore afford to be invested in high growth assets, which carry some measure of risk. Assets need to be invested in high growth assets in order to meet the long-term goals the Trustees have targeted.

Members have an option to commence a de-risking phase at five years prior to retirement. The Life-Stage Model consists of five increments of risk-reducing portfolios - each based on the number of years to a member’s normal (or elected early) retirement date.

Portfolio Name	Years to Retirement	Active Member Balanced	De-risking Portfolio	Prescient Positive Return	Banker Cash
Balanced	More than 5 years	100%	-	-	-
Default De-risking 20	5 to 4 years	80%	20%	-	-
Default De-risking 40	4 to 3 years	60%	40%	-	-
Default De-risking 60	3 to 2 years	40%	60%	-	-
Default De-risking 80	2 to 1 years	20%	80%	-	-
Default Final year portfolio	Less than 1 year	-	-	100%	-
OPTIONAL: Investment Solutions Banker (Cash)	2 to 0 years	-	-	-	100%

In order to have an adequate retirement benefit, it will be necessary to take on some investment risk, because investing in low-risk assets for a long period of time means that you lose out on greater returns that are available in portfolios that have more equities (risky assets) over a long period of time. (See the section on General investment principles below for more information.)

What portfolios make up the Life-Stage Model?

Please note that switching to the cash portfolio will only be allowed within 24 months of a member’s actual retirement date.

General Investment Principles

As a member of a defined contribution fund, you carry the investment risk. It is therefore important that you are aware of the different types of risk to which you will be exposed, as you may end up with less money than you expected as a result of risk. What may be regarded as the ‘safest’ investment option may NOT be the safest for you.

No matter how your money is invested, it will always be exposed to some level of risk - in other words, the possibility of a poor return. So, even though you are aiming to grow your money, there is always a chance that you may lose value, or that your money may not grow as much as you expect.

It is, however, necessary in a retirement fund to take on some measure of risk, in order to achieve the investment returns required to provide adequate retirement benefits.

Investment Risks

There are many kinds of investment risk. The two main types that you should be concerned about are explained below.

Inflation risk: This refers to the chance of your investment not growing enough to beat inflation. It is the primary risk that all members face and which investment funds aim to manage.

Volatility risk: This refers to the variability, or “ups and downs” of the market, which affects the value of your member share. Volatility risk can be reduced by switching to asset classes that yield more reliable returns - i.e. returns with lower variability - such as cash. However, investors are generally rewarded with higher returns for bearing higher variability, which is why investment in more conservative asset classes will reduce your potential for earning higher returns.

These risks usually “work against each other”. By reducing volatility risk, you may be increasing your inflation risk, and vice versa.

Types of Investment (asset classes)

There are different types of investments (called asset classes) available to retirement funds. These asset classes vary when it comes to inflation versus volatility risk. The ones most often used are:

Cash

Cash is your safest investment. Cash usually offers the lowest investment return and has no volatility risk (i.e. its value is not dependent on market forces). You are not likely to lose any capital, but over the long term, the lower expected returns might not beat inflation.

Bonds

Bonds are instruments with a promise to repay the capital amount plus interest at a specified date in the future. It is therefore an IOU issued by the Government, semi-government institutions or companies. Government bonds usually offer a higher return than cash. Since they are subject to market movements if they are traded, they do carry some volatility risk. The value of bonds also varies with interest rate levels in the market: the longer the term of the bond, the more sensitive it will be to changes in the interest rate. However, investors who are willing to face these risks are usually rewarded with returns that are higher than those of cash. Bonds have a lower risk profile than shares, but the expected long-term returns are also lower.

Equities or Shares

When you buy shares in a company, you are in effect buying a small part of the company and will share in any profits declared, in the form of dividends.

Share (equity) prices are sometimes affected by market sentiment. Sometimes investors are negative towards the market (or towards a sector of the market or a particular company listed on the market) and, as a result, even if the company in which the Fund has invested is doing well, the shares may still fall in value.

The reasons for rises and falls in share prices are sometimes predictable. However, often the market may rise or fall because of factors that are not predictable. For this reason, it is very difficult to time entry into and exit from the market to take advantage of these movements. Trying to time the market to increase your investment returns is a bit like taking your life savings to a casino.

Shares (equities) can be bought and sold on stock exchanges throughout the world. The South African stock exchange is called the JSE Limited. The two main features of equities (compared to property, bonds and cash) are:

Historically, over the long term, equities have been the asset class that has provided the highest investment returns; and
Equities have had the highest volatility (or risk).

This makes sense – higher returns are usually associated with taking on more risk.

International or Offshore Investments

Investments in equities, property, bonds, and cash can be made either in South Africa or internationally. The main additional factors introduced by international investment are:

The Fund can be exposed to companies that have the best growth prospects in the world. For example, there are very few South African companies in the rapidly growing pharmaceutical and healthcare sector – internationally, the Fund can get exposure to the best companies in this sector.
The Fund is exposed to currency changes. Say, $1 currently costs R10 and the Fund invests R10 million in the USA (i.e. $1 million). If the rand now “weakens” so that $1 now costs R11, the Fund will profit since its $1 million investment is now worth R11 million.

From time to time there are episodes of investor panic and heightened “risk aversion”. Increasingly, these episodes occur globally, rather than just being confined to one country. When this happens, there is often a tendency for international investors to sell assets in markets such as South Africa that are perceived (whether fairly or not) as “risky”. Generally, in such episodes there is a so-called “flight to quality”, in which investors retreat to the perceived safety of bonds issued by the governments of the major industrial nations such as the USA, Japan, and countries in Western Europe. Having some investments in these major markets, especially in their government bonds, may give the Fund a degree of short-term protection in such episodes of investor panic.

Where your money is invested

The Fund’s investments are invested with the following managers:

Domestic Investment Managers
Allan Gray Limited
Ninety One
Prudential Portfolio Managers
Niche Asset Management
Abax Investments
Prescient Investment Management
Coronation

Offshore Investment Managers
Ruffer LLP
Orbis Investment Management
Lansdowne Partners

How is performance monitored?

The Fund’s asset managers have been given a targeted return to beat for each asset class. This is called their benchmark. Each benchmark was selected in consultation with the Fund’s investment consultants as well as the respective investment managers, as they need to be appropriate and realistic.

The Trustees monitor the performance of the Fund’s assets and investment managers on a regular basis to ensure that the investment objectives of the Fund are achieved over the long term.

Investment choices for members nearing retirement

The Fund operates on a Life-Stage Model, which is chosen by the Trustees for members and is generally suited to members who do not wish to exercise their own investment choice. The model works on the basis that all members who are more than 5 years away from their normal or planned retirement date are invested in the Balanced Portfolio.

Once you reach 5 years from your normal or planned retirement age, the Life-Stage Model will move your Fund Value to less risky assets over a 5-year period as you approach your retirement date. This will happen automatically by moving your Fund Value into the De-Risking portfolio, depending on the number of years until your normal or planned retirement date (whichever comes first).

Planned retirement date is the date before your normal retirement date that you intend to retire on.

Changing your investment portfolio

Limited investment choice is available to members who are within 5 years of their normal or planned retirement age. If you are within 5 years of normal or planned retirement age and do not want to be invested in the Life-Stage Model, you may choose how you want your retirement savings invested. There are 3 options and detailed information can be found here.

This form must be completed and returned by email to fuse@tfg.co.za

Investment Returns

The Fund’s actuary calculates the investment return from the information received from the Fund’s investment managers on a monthly basis.

Annualised net returns of the respective portfolios to 31/12/2020

Portfolios	1 year	3 years	5 years	7 years	10 years
Active Member Balanced	5.9%	3.8%	5.5%	7.4%	9.6%
Default De-risking 20	6.0%	3.9%	5.5%	7.2%	9.2%
Default De-risking 40	5.9%	4.0%	5.5%	7.0%	8.9%
Default De-risking 60	5.8%	4.0%	5.4%	6.7%	8.5%
Default De-risking 80	5.6%	4.0%	5.4%	6.5%	8.1%
Default Final year portfolio	5.3%	6.8%	7.1%	6.8%	6.2%
Investment Solution Banker (Cash)	6.3%	7.7%	8.1%	7.7%	7.3%

Historical annual net investment returns

Portfolios	2020	2019	2018	2017	2016	2015	2014	2013	2012	2011	2010	2009	2008
Active Member Balanced	5.9%	8.4%	(2.5%)	11.5%	4.9%	12.0%	12.3%	19.9%	16.0%	9.1%	12.6%	15.2%	(3.1%)
Default De-risking 20	6.0%	8.4%	(2.3%)	10.9%	5.1%	10.9%	12.0%	18.2%	15.9%	8.7%	-	-	-
Default De-risking 40	5.9%	8.4%	(2.0%)	10.4%	5.2%	9.7%	11.7%	16.5%	15.9%	8.3%	-	-	-
Default De-risking 60	5.8%	8.4%	(1.8%)	9.9%	5.4%	8.6%	11.4%	14.8%	15.8%	7.8%	-	-	-
Default De-risking 80	5.6%	8.3%	(1.6%)	9.3%	5.5%	7.5%	11.1%	13.2%	15.7%	7.4%	-	-	-
Default Final Year Portfolio	5.3%	8.4%	6.8%	8.0%	6.9%	5.6%	-	-	-	-	-	-	-
Investment Solution Banker (Cash)	6.3%	8.4%	8.5%	8.6%	8.7%	7.1%	6.5%	6.2%	6.3%	6.6%	7.6%	9.6&	-
CPI (Inflation)	3.1%	4.0%	4.5%	4.7%	6.8%	5.2%	5.3%	5.4%	5.7%	6.1%	3.5%	6.3%	9.5%

Total Expense Ratio (TER)

The Total Expense Ratio (TER) and Total Investment Charges (TIC) for the Fund’s portfolios for the period ended 31 December 2019:

Portfolio	Total Expense Ratio (TER)	Transaction Costs (TC)	Total Investment Charges (TIC)
TFG Balanced Portfolio	0.69%	0.11%	0.79%
TFG Pensioner Portfolio	0.56%	0.06%	0.62%
TFG Final Year Portfolio	0.60%	0.05%	0.65%

Investment Reports

Assets and Liabilities

Assets and Liabilities for the period ended 31 December 2019:

Assets	2019 (R'000)	2018 (R'000)
Investments	5 671 395	5 334 568
Accounts Receivable	1 589	1684
Cash at Bank	1 290	354
Total Assets	5 674 274	5 336 606

Funds and Liabilities
Member's individual accounts	3 862 821	3 511 671
Reserve account	1 743 183	1 691 479
Unclaimed benefit	12 027	8 806
Transfers payable	2 051	410
Benefits payable	45 834	116 245
Accounts payable	8 358	7 995
Total funds and liabilities	5 674 274	5 336 606

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CONTACT DETAILS

	fuse@tfg.co.za
	To speak to an administrator
	TFG Retirement Fund PO Box 6020 Parow East 7501 or Stanley Lewis Centre 340 Voortrekker Road Parow East 7500