Sasha Planting
3 minute read
12 Apr 2014
9:00 am

Two RAs worth looking at

Sasha Planting

Saving for retirement may be essential, but it is also plagued by a complex retirement product environment and an array of choices so vast that often we end up investing in products with high and hidden fees or make emotional decisions that see us switching in and out of funds based on past performance.

Image courtesy AFP

As a result we waste precious capital. As such, two products in the retirement annuity universe, from 10X Investments and Sygnia.

Financial Services are attracting investor attention – and aren’t promising the earth. Seemingly, their fees are the lowest in the market and their product offering is deliberately simplified.

The following comparison explains a little about both products and highlights some differences.

Costs: Both make use of passive index tracking to keep costs down, while keeping pace with market-related returns. Neither charge platform administration fees, initial fees or switch, transfer, resign or retire fees.

Sygnia’s annual management fee (VAT incl.) is 0.40%. For 10x, the first R1m costs 1.03%, the next R4m 0.80%, the next R5m 0.57%, and above R10m 0.40%.

Underlying strategy: Both offer a multi-asset class global balanced portfolios managed on a passive basis. Sygnia engages in some active asset allocation.

Underlying investment vehicle: Sygnia offers three risk profiled unit trusts: Sygnia Skeleton 40 (low risk), 60 (medium risk) and 70 Funds (higher risk). The daily unit price and performance is publically available.

10X has one product divided into ten specific portfolios (with equity exposures ranging from 20% to 75%). Investors are allocated to the portfolios according to lifestage. The product portfolios are managed by 10X and “owned” by the 10X RA Fund.

There is no daily-published unit price, but an online monthly investment report is available.

Diversified portfolios: Both are invested in listed local and international company shares, listed property shares, listed bonds and cash. They differ in terms of the benchmark indices they track.

Sygnia’s Skeleton Funds track publically available FTSE/JSE equity market indices. The funds are possibly more diversified in that they track more indices than 10X. These include the FTSE/JSE SWIX Index; the ALL Bond Index; the Barclays Global Bond Index; the FTSE/JSE Listed Property Index; the STeFI and the MSCI All Country World Index.

10X tracks five indices including the Composite All Bond and Inflation Linked Bond Index; FTSE/JSE Listed Property Index; AF Short Term Fixed Interest Index, MSCI All Country World Index and the Deutsche Bank 10X SA Share Index.

The latter is an index designed for the 10X retirement product. CEO of 10X Steven Nathan says it was designed to avoid the concentration risk inherent in many of the JSE indices. While the SWIX does the same, it only caps the companies with foreign listings like Anglo and ignores the likes of Naspers.

The Deutsche Bank 10X index includes the top 60 companies on the JSE, rather than the given 40.

The index is not JSE-listed, which makes it more difficult for ordinary investors to track.

Life stage allocation: 10X offers one time-driven investment solution versus an array of choices. Savings are automatically invested in one of ten investment portfolios based on retirement age. The longer the time horizon, the higher the allocation to equities.

10X switches investors’ assets between different risk-profiled strategies automatically, but you can opt in to a higher risk portfolio.

Sygnia’s Skeleton Fund offers three risk profiled unit trusts with different equity exposure levels (40%, 60% and 70%). Clients can select the unit trust that best meets their individual risk profile.

Asset Allocation: Sygnia manages the asset allocation strategy within each unit trust on an active basis in response to prevailing market conditions. Sygnia Asset Management CEO Magda Wierzycka explains: “We can increase or reduce exposure as conditions determine.” This is within narrow bands though eg in a high equity fund from 70% to 75% or 65%. “The logic is that when there are obvious risks you can take some risk off the table.”

In line with its passive investment strategy, 10X does not actively manage the asset allocation of the funds. The asset allocation of each of the 10 funds is set.