OMEGS

Introduction to the Absolute Growth Portfolios (AGP)

  • The Old Mutual Absolute Smooth Growth Portfolio is the default investment portfolio selected by the OMEGS Joint Management Committee for members who don’t make an active investment decision. It provides smoothed returns and a 50% guarantee. AGP Smooth is a good “one-size-fits-all” investmentappropriate for the needs of the majority of OMEGS members.
  • The Old Mutual Coregrowth 100 Portfolio offers a 100% guarantee (on benefit payments). However, there is a capital charge of 1.8% p.a. charged for the 100% guarantee. Additionally, the underlying assets are more conservatively invested relative to the AGP Smooth Growth Portfolio.
  • The AGP range uses enhanced smoothing technology to grow retirement savings while protecting investors from the risk of volatile markets. The returns that are earned by the investments underlying the AGP portfolios are smoothed over time through bonuses that are declared monthly in advance. AGP’s assets are invested in an aggressive balanced portfolio which comprises both local and global equities, interest bearing assets, property and alternative investments. Smoothing is a process used to deliver long-term returns to investors in a predictable and stable way. This protects members from the short-term volatility and uncertainty that is often associated with investing in market-linked balanced funds.
  • AGP delivers bonuses which are calculated using a simple and transparent formula with a CPI related target as the main focus. The formula smooths growth over time and reduces the impact of market ups and down on the members investment value. The long-term return earned on the portfolio is expected to be approximately equal to that of a similarly managed market-linked portfolio (net of capital charges).

AGP: Bonus smoothing reserve and investment account

  • The investment returns earned on AGP assets are credited to a Bonus Smoothing Reserve (BSR), from which bonuses are declared. The BSR is the difference between the market value of the underlying AGP investments and the total smoothed Investment Account values of all members invested in the portfolio. The BSR is targeted in the long term to be within a range of 0% to 5% of the total smoothed Investment Account values of all members invested in AGP. However, the smoothing process, coupled with short-term market movements and the impact of cash flows, does mean that BSR moves outside of this range at times.
  • A member’s Investment Account value is the value of the capital the member has invested in the fund plus all bonuses declared to date less any unit disinvestments.

Book Value Switches (also known as Investment Account Switches):

  • Allowed at the investment account value twice a year, on 01 October and 01 April. A minimum of 3 months’ notice for these switches is required, i.e. a completed switch form or online switch must reach Old Mutual at least 3 months before the switch date.
  • There is an annual limit to this Book Value Switch facility to protect investors in these portfolios in adverse market conditions when the Bonus Smoothing Reserve is negative.
  • If you want to switch on any date other than the two dates specified above, a Market Value Switch can be processed.

Market Value Switches (also known as Market Account Switches):  

  • Allows you to switch from one of the Absolute Growth Portfolios at any point at investment account value less a market value adjuster when applicable.
  • The purpose of the Market Value Adjuster (MVA) is to protect the policyholders remaining in the fund.
  • An MVA is applied when the market value of the assets are less than the investment account value.
  • The MVA is expressed as a percentage (%) of the investment Account, so the amount switched is reduced by Investment Account Amount x MVA%.
  • Old Mutual retains ultimate discretion on the level of an MVA.
  • Your estimated switch value can be obtained by calling the Old Mutual Member Servicing Centre on 0860 20 30 40.

Example A: MVA = 0%; Investment Account = R1000. Member wants to switch all his money to another fund. Investment Account reduces by 0% and R1000 is switched.

Example B: MVA = 5%; Investment Account = R1000. Member wants to switch all his money to another fund. Investment Account reduces by 5% and only R950 is switched.

AGP: Frequently asked questions

What is a Market Value Adjustment (mva)?

A Market Value Adjustment (or MVA) is an adjustment which is made to a member’s investment account value when the market value of the assets underlying their investment falls below their investment account value. The adjustment is applied to bring the investment account value in line with the value of the assets underlying their investment. The MVA is only applied if members choose to voluntarily take their money out of an investment portfolio via a market value switch.

Why would an MVA be applied?

Periods of poor market performance may cause the returns earned on the AGP investment portfolios to fall below the bonuses declared on these portfolios. As a result, the value of the assets underlying a member’s investment may fall below their investment account value.

An MVA is applied if a member chooses to voluntarily switch their money out of an AGP investment portfolio while the value of the assets underlying their investment is below their investment account value. An MVA is applied to bring the member’s investment account value in line with the value of the assets backing their investment.

What does an MVA achieve?

By bringing the investment account value of a member voluntarily switching out of an AGP investment portfolio in line with their share of the value of the investment portfolio’s assets, an MVA protects the interests of those members who remain in the investment portfolio by ensuring that the bonus smoothing reserve (BSR) is not unduly reduced by investors that choose to voluntarily exit the investment portfolio.

If this adjustment was not in place, the value paid to a member voluntarily exiting the investment portfolio could be too high and could mean that those members that remain receive future bonuses that would be too low.

An MVA is a temporary measure which is dependent on market conditions and does not benefit Old Mutual’s shareholders. An MVA is a temporary measure that is removed when markets recover and the value of the assets backing members’ investments catches up to their investment account values.

When will an MVA apply?

An MVA will only apply when a member chooses to voluntarily switch their money out of an AGP investment portfolio while the value of the assets underlying their investment is lower than their investment account value. An MVA will not apply to members remaining invested in the investment portfolio, or to members exiting the investment portfolio due to defined benefit events (such as resignation, termination of employment, retrenchment, retirement or death).

Does my guarantee protect me from the MVA in any way?

Guarantees do not protect the value of your benefit when you choose to voluntarily take your money out of an AGP investment portfolio via a switch. The impact of an MVA is thus not restricted by the guarantee.

Guarantees protect members by ensuring that they receive a minimum benefit amount on certain benefit payments only (such as resignation, termination of employment, retrenchment, retirement or death). MVAs do not apply to these benefit payments in any way.

How do I ensure that my omegs savings are not adversely affected by an MVA?

To ensure that your investments are not impacted by an MVA and that you continue to benefit from the smoothed investment growth of the Old Mutual Absolute Growth Portfolios, make sure that you don’t implement a Market Value switch out of an AGP investment portfolio at a time when an MVA is applicable. Members should keep a long-term view in line with their investment plan as the investment portfolio is designed to deliver strong growth in the long term despite short-term volatility.

You can also make a Book Value switch (Investment Account switch) to avoid the impact of a market value adjuster. Book Value switches can only be made twice a year, on 01 April and 01 October each year. You must apply for a Book Value switch at least 3 months before those dates, i.e. 31 December and 30 June respectively. Once you have elected a Book Value switch, you will not be able to cancel this during the three months to the actual switch date.

Remember, the MVA is a temporary measure which is dependent on market conditions and it only impacts those members who choose to exit the investment portfolio voluntarily via a market value switch while the MVA is in effect. Members receiving benefit payments (e.g. on resignation, termination of employment, retrenchment, retirement or death) are NOT affected by the MVA, and will continue to benefit from smoothed investment growth at the time when they need it most.