21st March 2020

By Laylas

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All South Africans will be greatly troubled by the impact that the Coronavirus epidemic is currently having on our lives.  To add to our concerns about our health and well-being, and that of our loved ones, and in some cases people’s fears about their jobs and income, the Coronavirus has unfortunately had a severe impact on the financial markets both locally and internationally.  This note deals with the impact on members’ savings in the Fund - especially those members in the DC section of the Fund who are invested in the portfolios that are exposed to the vagaries of the markets.


We understand that this is a trying time for you. These are undoubtedly among the toughest market conditions we have had in many years. At the start of 2020 there was wide consensus in the investment world that the outlook was positive and that equity markets would perform well, going forward. 


With the outbreak of the coronavirus, many experts came to fear that this might be the catalyst for a major market setback.  However, what was regarded as a low probability event has turned into a reality, although more time needs to elapse before we can know whether this indeed signals a more long-term decline in asset prices.


What makes this time even more difficult is that it has been preceded by a six-year period of low market returns for South African funds. Furthermore, there has been no place to hide in the current downturn, as equities across the board are down, and the value of investments in government bonds has also fallen sharply.

Despite this, the trustees are firm believers in the case for long-term investing, and so we remain in the camp of the optimists.


With regards to the actual investment strategy, our view at this stage is to stick with a long-term view and not to make changes to the strategy in reaction to the market turbulence right now. This broadly remains our view, and we caution against a reduction in exposure to risky assets (like shares) for those investors who have a long time horizon.


Protection of your capital generally becomes more necessary as you approach retirement. For members in the DC section that are close to retirement age 65, our Life Stage investment model ensures that you move from a high risk portfolio to a lower risk portfolio over a period of 7 years. So members in that category and who are in the Life Stage model, especially members very close to retirement, are invested in lower risk portfolios.


We consider that there are (with patience) reasonable prospects for attractive returns from the current level of markets for investors with a longer time horizon. Note we are not saying that things cannot get worse. In fact we think the news-flow is likely to get worse in the coming days and weeks, but the market is forward-looking and may already be pricing this in; importantly, we also think it is unrealistic to believe that one can get out of the markets and then judge when to get back in, in time to capture the recovery.


Experience shows that some members believe that they can “time” the share market. The reality is that even the vast majority of expert investment managers cannot “time” the market effectively – so members who lack such expertise should not attempt to do this.


While it may be tempting to head for the exit, long term investors (members a long way from retirement) should remember that it is the time in the market that is important, rather than trying to time the market.


As a Trustee Board, along with our advisors, we are monitoring our investments closely. As mentioned earlier, we intend sticking to our existing investment strategy for now, even in these very difficult times, though we will, in consultation with our professional advisors, consider whether and when the Fund and its members could benefit from any changes that need to be made.


We urge members once again not to make any hasty decisions. There is no doubt that trying to stay calm in a situation like the present can be difficult. It is perhaps important to remind yourself what your original investment objectives and time horizon were, and decide whether the current situation really changes those.  The current crisis will pass, given time!


We understand the concern and disappointment that the havoc on the financial markets, and the wider social upheaval, are causing. If you have any specific questions or concerns after reading this, please let us know and we will respond.


All of us are concerned at the moment for ourselves, our families, our friends and neighbours.  The trustees share these concerns and wish all members safety and strength at this very difficult time.

Covid-19, Defined Contribution, Finance, Savings