In preparation for aligning Old Mutual Unit Trusts to a new administration platform in early 2021, there are certain changes to transactions and investments that we need you to be aware of.
Proposed change to the investment policy and name of the Old Mutual Maximum Return Fund of Funds
Old Mutual Unit Trusts has received permission from the FSCA to proceed with the ballotting of this fund.
We are proposing a change in structure of the fund from a fund of funds to a fund that invests directly into equity and non-equity securities, and is still able to invest in CIS portfolios (unit trusts), subject to certain limitations. We believe this gives the portfolio manager more flexibility to align with their style and investment process in order to achieve the fund’s investment objective for a better outcome for clients.
Should you have clients invested in this fund on 1 February 2021, they will receive a ballot letter and editable ballot form in order to cast their vote.
Old Mutual Bond Fund Ballot
If you are invested in the Old Mutual Bond Fund, we are pleased to inform you that we successfully balloted clients to amend the investment policy of the fund to provide for the use of listed and unlisted derivatives, and the ballot outcome has been approved by the Financial Sector Conduct Authority (FSCA). If you need more information regarding any of the above or your statement, contact your financial planner, call our service centre at 0860 234 234 or email email@example.com.
The Old Mutual Bond Fund invests in the South African bond market. In this environment we invest in both SA government bonds as well as SA non-government bonds. The fund’s investment in SA non-government bonds was historically restricted due to the inability to use derivative instruments despite its allowance in the Collective Investment Schemes Control Act (CISCA). The inclusion of derivatives in the fund’s mandate, will allow us to make greater use of SA non-government debt exposures to add additional returns to the fund. While derivatives are generally considered to be high risk instruments, our use of derivatives would primarily be to manage interest rate risk in the fund relative to the fund’s benchmark. The change will not affect the aim or return objectives of the fund.
Impact of the proposed change on you, as an investor
- The act that governs unit trusts, CISCA, allows for the use of derivative instruments for the purpose of efficient portfolio management. The ability to make use of derivatives enables the Portfolio Manager to reduce risk and enhance the performance of the fund.
- The ability to make use of derivative instruments will expand the investable universe of the fund, resulting in better issuer diversification and reduced concentration risk. It will also enable the manager to more effectively manage interest rate risk.
- The allowance for the use of derivate instruments will not impact on the objective of the fund, which will still aim to offer a combination of capital growth and high income yields.
- The portfolio may gain exposure to listed and unlisted derivatives which may be used for efficient portfolio management purposes. There are certain risks associated with the use of derivatives, however these risks can be mitigated. If these risks are not well mitigated, this may result in portfolio losses. However, derivatives can also be a great risk management tool to reduce risk and increase returns.
- The ASISA category, benchmark and fees of the fund will remain unchanged.
Below is an extract from the Portfolio Manager on why we need to introduce derivatives to this fund:
The absence of using derivatives is a major limitation in managing the Old Mutual Bond Fund and is also directly linked to our ability to add credit risk to the fund. In the past when credit risk was first introduced to the domestic bond market, these instruments were mostly medium to longer term fixed rate instruments. At the time the fund had a fixed rate benchmark so these instruments were a good match. However, over the past decade, as the market became more comfortable with credit as an asset class, and linked to the development of the domestic SWAP market, we had a transition from the issuance of fixed rate longer term credit to short term (predominantly 3 years) floating rate credit. Due to the long dated nature of the fund’s benchmark and the inability to trade derivatives, we cannot consider buying any floating rate credit instruments for this fund.
If we could use derivatives, we could buy a floating rate instrument earning a yield pickup. We would then use an interest rate swap to convert the floating interest rate exposure to a fixed interest rate exposure that is more aligned to the fund’s benchmark. Because we cannot trade derivatives (in particular interest rate swaps) we have limited ability to add credit risk (additional yield) to the portfolio. At the moment fixed rate bonds are predominantly issued by SOEs and selected banks, which limits our ability to add issuer diversification to the fund.
Thus our motivation for adding derivatives to the fund is aimed at improving our ability to add (and diversify) credit risk to the portfolio and to effectively manage interest rate risk.
KEY DRIVERS OF RETURNS
Currently, the primary tool at our disposal to add returns to the Old Mutual Bond Fund is via interest rate exposure, which detracted from returns over the past three years as a result of declining interest rates. In addition, the tools at our disposal to mitigate some of the return volatility from interest rates (i.e. trading derivatives and floating rate credit) are currently limited to investing in implicit or explicit government guaranteed debt. This exposes the fund to unnecessary single issuer risk and does not provide the diversification we need from a credit perspective. We believe that the addition of the ability to make use of derivatives will enhance the ability of the fund to fulfil its mandate by taking on more diversified credit risk exposure in order to enhance the yield of the fund.
During tax season, ensuring you have access to all the right documents can sometimes be a rather arduous process. With the Old Mutual Unit Trusts Secure Website, you're able to access your tax certificates easily - Certificate of Distributions, Capital Gains Tax Certificate, Retirement Annuity contribution certificate - online.
All you have to do to have access to your Unit Trust tax certificates, is register for this service, providing us with your personal details and following the prompts. Access to tax
certificates is simply one of the many services available on the secure site, The site also offers a variety of features to ensure instant, easy access to an array of information and
transactional capabilities, as well as simplified navigation, quick links and innovative functionalities.
Old Mutual Unit Trusts has teamed up with the highly respected electronic communications experts at InfoSlips to deliver secure and engaging interactive client statements to investors. If you still receive your statements by post and would like to switch to this innovative electronic client statement, please call our service centre at 0860 234 234, or email your client number to us.
By simply using the navigation along the top of the InfoSlip email, you can access your transaction statements and portfolio values, as well as any news and important information we may include with the statement mailing. You are now also able to view a summarised version of your InfoSlip on your smartphone by installing one of the new
mobile apps below.
MOBILE APPS TO VIEW YOUR INFOSLIP
NEW FUND RANGE
As part of our fund enhancements we launched two new funds on 28 February 2018: Old Mutual Equity Fund and Old Mutual Core Moderate Fund. The Old Mutual Equity Fund is a rand-based South African general equity fund that can invest 30% offshore. It will be managed by the same team who manages the Old Mutual Investors’ Fund, the longest running unit trust in South Africa.
The Old Mutual Core Moderate Fund is a passive balanced fund and, as communicated last quarter, will complete the passive multi-asset range as per below:
FUND NAME ASISA CATEGORY Old Mutual Core Conservative Fund South African - Multi-Asset - Low Equity (maximum 40% equity exposure) Old Mutual Core Moderate Fund South African - Multi-Asset - Medium Equity (maximum 60% equity exposure) Old Mutual Core Balanced Fund South African - Multi-Asset - High Equity (maximum 75% equity exposure)
OLD MUTUAL MID & SMALL CAP FUND
The investment policy of Old Mutual's Mid and Small Cap Fund allows exposure to a range of shares in the mid and small indices. This excludes the 40 largest stocks listed on
the FTSE/ALSI All Share index. Due to recent changes to the way in which the JSE calculates certain indices some mid cap shares were unintentionally excluded from the
investible universe of the fund.
We have engaged with the Financial Services Board (FSB) to update the fund's investment policy so that the manager can continue to manage the fund as intended. This will
enable the fund to continue to gain exposure to the full range of shares in the mid and small cap indices. The 40 stocks in the Large Cap Index will be excluded from the
investment universe of the fund.
Old Mutual Unit Trusts has set out three retail priorities for 2019 in order to make our clients the epicentre of our investment world. One of the priorities we would like to highlight now is: making sure we have a fit-for-purpose product suite and our aim to optimise operational efficiencies.
The alignment of Old Mutual Unit Trusts to the same administration platform that administers Old Mutual Wealth not only assists in optimising operational efficiencies but it also creates an experience that facilitates the following benefits:
- Simplifying our investment offering via our product wrapper consolidation
- Online transaction capturing with real-time validation
- Online tools that highlight the value of advice
- Ensuring clients’ investments are relevant in the current and future regulatory environment
Additional details are contained in the Q & A document, which also covers the following platform transfer topics:
- Product and Administration
- Investment and Financial Planner Fees
- Online Accessibility and Transaction Submission
- Fund Characteristics
- General Terms and Conditions