By Rocco Carr, Business Development Manager at Glacier by Sanlam. The *Glacier Invest Real Income portfolios aim to reduce volatility while giving inflation-beating returns. The following options are available:
- Glacier Invest 2.5% Real Income Solution (Conservative)
- Glacier Invest 3% Real Income Solution (Cautious)
- Glacier Invest 4% Real Income Solution (Moderate)
- Glacier Invest 5% Real Income Solution (Moderate Aggressive)
- Glacier Invest 6% Real Income Solution (Aggressive)
Of these, the Glacier Invest 5% and 6% Real Income Solutions, in my opinion, are the best value-for-money alternatives for most of the living annuity clients. Many articles have shown that to keep a living annuity viable over 30 years, one needs to take on a moderate aggressive asset allocation. However, taking on such an asset allocation often leads to sharp volatility which most clients feel uncomfortable with. During poor return periods like we saw from 2016 to 2020, the impact of sequence risk is enormous, and many clients lost capital during this period.
It can therefore seem like a catch-22. But with the new real income portfolios, the focus is to reduce volatility while keeping asset allocation in line with clients’ growth needs.
Why use the Glacier Invest 5% Real Income Solution?
The graph below shows the five-year standard deviation of the low equity category being around 4.6% (marked with a red circle). This is typical of a cautious portfolio that aims to achieve a five-year return of inflation plus 3%.
However, when we do the same exercise for the Glacier Invest 5% Real Income Solution, which is moderate aggressive, the five-year standard deviation is also at around 4.5% (marked with the red circle below). Thus, by using the Glacier Invest 5% Real Income Solution one takes on a similar risk as with a normal cautious portfolio, but the return possibility is far greater.
The Glacier Invest 5% Real Income Solution is therefore suitable for clients who are prepared to take on volatility cautiously. Since most living annuity clients can live with that standard deviation, I see this as the most suitable option for most living annuity clients.
In the graph below, the performance of a typical cautious portfolio is compared with the Glacier Invest 5% Real Income Solution over two years until end-September 2020. The Glacier Invest 5% Real income Solution consistently outperforms.
How do they keep volatility low?
The introduction of 10% exposure into four equally-weighted hedge funds as well as 25% exposure to the Sanlam Multi Managed Smooth Growth Fund (which also has certain guarantees) has dramatically reduced the volatility in these portfolios. But since the underlying assets are still moderate aggressive, the opportunity for growth is not taken away.
Why use the Glacier Invest 6% Real Income Solution?
This portfolio has a higher volatility than the Glacier Invest 5% Real Income Solution. But while its underlying assets reflect an aggressive portfolio, the risk is less than the category average of the world-wide flexible category. This portfolio has more offshore exposure, so it is suitable for clients who want to take on more risk over the long term.
The portfolio has outperformed the worldwide category over two years with far fewer drawdowns during tough times (see the blue lines compared to the yellow lines in the graph below).
These wrap funds present ideal opportunities for living annuity clients, and can be combined with one another, with other wrap funds as well as other funds on the platform. However, in most instances, they will suffice as a single solution for post-retirement funds.
Glacier Invest is the discretionary fund management offering of Glacier Financial Solutions (Pty) Ltd (“Glacier’’). Glacier has partnered with Sanlam Multi Manager International (Pty) Ltd, part of the Sanlam Investments Group, to optimise the investment management responsibilities
*The Glacier Invest Real Income Solutions include wrap fund portfolios managed by Glacier Financial Solutions (Pty) Ltd., a Licenced Discretionary Financial Services Provider, FSP 770, trading as Glacier Invest
Glacier Financial Solutions (Pty) Ltd is a licensed discretionary financial services provider, trading as Glacier Invest FSP 770
Sanlam Multi-Manager International (Pty) Ltd FSP 845 is a licensed discretionary financial services provider, acting as Juristic Representative under Glacier Financial Solutions (Pty) Ltd
The Glacier Investment-Linked Living Annuity is underwritten by Sanlam Life Insurance Ltd and administered by Glacier Financial Solutions (Pty) Ltd.