How to get off the financial rollercoaster
For most investors, trying to navigate the South African unit trust market is like shopping in a foreign supermarket stocked with products they don’t recognise, labelled in a language they don’t understand. There are now almost 1 600 funds to choose from, and it’s not surprising that many investors don’t know where to start.
Even for educated, business-minded people, the investment world can present a large, confusing universe. The discomfort any of us might feel entering a store where everyone is speaking a foreign language and the shelves are lined with unfamiliar goods is the same discomfort that many of our clients experience when they think about investments.
Recognising this is an important starting point when developing a new product, and it has become clear to us that we must focus on simplicity and ease of understanding – delivering solutions that clients not only need, but that they can understand and relate to. This is lacking in the wider market and is something that Sygnia works hard to deliver.
We followed this approach when developing the Sygnia Enhanced Income Fund; we began by listening closely to what our clients wanted in their portfolios, given the uncertainty of the world around them.
Understanding client needs
The overall volatility of equity markets and the poor performance of local stocks over the last few years have hurt many investors. Across the spectrum, our clients have expressed interest in a financial vehicle that will help them avoid this uncertainty and deliver stable returns.
This is particularly true for investors who are approaching retirement or have already retired. They want something that will deliver a consistent, inflation-beating income stream, with a low probability of capital loss.
At the same time, younger investors, who may be new to markets, have been so disappointed by equity returns that many have stopped saving altogether. Having no longer-term reference, they are understandably disillusioned. Although it would be best to stay the course and trust equity markets, it is a hard sell given current market conditions. Nonetheless, abandoning saving comes with a serious opportunity cost.
Consequently, investing in a product that provides more stability and certainty over the short term seems the ideal route for anyone scared of volatility.
Delivering a solution
Having established what both existing and potential future clients need, the challenge for us becomes how to deliver the solution in a way that these clients can relate to. It may be obvious to us what a multi-asset income fund does, but how do we express it in a way that makes sense to investors?
Fortunately, everyone understands debt. People make use of credit cards, borrow from banks to purchase cars, and they pay off home loans. People understand that debt repayments are made regularly, and they appreciate that whoever is lending the money generates a profit by charging interest.
The same principles apply to the generation of Sygnia Enhanced Income Fund returns: the fund invests in debt instruments issued by very credible entities, including banks and large corporates, that pay regular interest. Institutions sell “debt instruments” to investors such as Sygnia as a way of borrowing money, and they generally pay handsome interest rates. This, in turn, allows Sygnia to pass that interest on to investors in the Sygnia Enhanced Income Fund.
This form of investing ensures that our investors earn a stable income stream with greatly reduced volatility in their invested capital value.
When these factors are combined, they offer a product that is transparent, simple and delivers what investors are looking for in the current market environment – certainty. To us, that is the heart of being a client-centric business.
Sygnia Collective Investments is registered and approved under the Collective Investment Schemes Control Act. The Sygnia Enhanced Income Fund charges a fee of 0.60% ex VAT. A schedule of fees, associated risks and any further information can be viewed on the Sygnia Enhanced Income Fund fact sheet.