Outcome-based investing - momentuminv.co.za · The idea behind outcome-based investing is that your...

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Outcome-based investing An investment approach for tomorrow’s financial advisory practice

Transcript of Outcome-based investing - momentuminv.co.za · The idea behind outcome-based investing is that your...

Page 1: Outcome-based investing - momentuminv.co.za · The idea behind outcome-based investing is that your clients should set specific, personal goals that they want to achieve and should

Outcome-basedinvestingAn investment approach for tomorrow’s financial advisory practice

Page 2: Outcome-based investing - momentuminv.co.za · The idea behind outcome-based investing is that your clients should set specific, personal goals that they want to achieve and should

| investments | outcome-based investing | 2017Page 2 of 16

An investment approach to support your world-class advisory practice

Focusing on the right conversation – your client’s financial wellness The Momentum Financial Wellness Framework has been purpose built to provide you with a comprehensive snapshot of your client’s financial wellness at any stage of their lives. More importantly, because the primary and secondary needs are intertwined, the framework provides you with a holistic view of each of your clients’ state of financial wellness. The framework also highlights gaps that could potentially prevent your client from enjoying optimal financial wellness, now and in the future.

In keeping with the financial wellness framework, Momentum has developed a unique investment philosophy that prioritises the prospect of your client achieving their own unique investment goal. We call this revolutionary investment approach Momentum Outcome-based Investing.

Provide for my retirement

Provide for future & emergency

Create my wealth

My car

My personal belongings

My home content

Having an executable will

To educate my children

Family & business continuity

My buildings

If I have family medical expenses

If I have medical expensesIf I lose

my income

If I become disabled

If I get a major illness

If I die prematurely

P

ROT

ECT ME SUPPORT MY FAM

ILY

MY MONEY

Financial planBudgetingDebt managementTax

BU

ILD M

Y FUTURE PROTECT MY

STU

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An investment approach that focuses on your client’s unique needs

For many years, investment management has been shrouded in complexity Mathematical formulas, industry jargon and technical information has tended to dominate the investment management industry. Performance has traditionally been measured relative to generic market indices or a peer group.

Understanding risk measures has required advanced finance degrees. And unfortunately, the inherent structural imbalance of information and lack of transparency has contributed to many investors making poor investment decisions, increased uncertainty, and ultimately has reduced investor trust.

This unfortunate evolution has been reinforced by the constant flow of short-term, peer or market benchmark performance information. In other words, the regular updates about which fund or sector is the latest flavour of the month or moment, who has outperformed their peer group and soundbites from the latest award-winning fund manager.

A new way to define success All of the headlines about who is ahead are inevitably short-lived and literally change from week-to-week, if not day-to-day. And it unfortunately fuels your client’s emotions of fear and greed.

When your clients read about the latest short-term performance awards and figures, what do they feel? Euphoria if they recognise a top performing name on their investment statement. Or perhaps fear about whether they may be missing out. This often inspires questions about whether their money is in the best fund. Or worse, should they change their investments. At Momentum Investments we believe that things are not always that simple.

We understand the behavioural influences your clients face. That is why we have made an important and profound change to the way that we think about investing. We are building on our deep expertise in investing, where we have many years of experience and proven results. But, most critically, we acknowledge the need to be more client and investor-centric in our approach if we are to help your clients achieve their goals. This means:

• embracing the science of behavioural finance, • building our process around your clients’ goal(s) and customising our investment capabilities to meet your

clients’ needs, • ensuring that we assist you to ensure that your clients avoid common investor mistakes.

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The objective is simple, to keep your clients invested Missing top performing days by trying to time the market can result in your clients failing to achieve their investment goals.

FTSE/JSE All Share Index, 1996 - 2016

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What isoutcome-based investing?

It is a revolutionary approach to investing that prioritises your clients’ needs ahead of a peer group or generic market benchmark Financial market uncertainty and the investor risk aversion that accompanies this is the new norm. This is driving a need for investors and financial advisers to find a more intentional framework for making investment decisions, ultimately ensuring a greater probability of achieving a clearly defined set of goals. Along with this, there is an increasing awareness that traditional risk and performance metrics are not necessarily aligned with your clients’ needs. It also highlights gaps that might prevent your clients’ from enjoying optimal financial wellness, now and in the future.

It all starts with the needs of your client in mind and then makes allowance for their behavioural preferencesWe have all heard that the majority of active investment managers underperform their benchmarks. However, research has further shown that many investors don’t achieve the same performance as the funds in which they are invested. It is estimated that investors, in pursuit of improved returns, compounded this underperformance through attempting to time their entry and exit into these funds. This sometimes value destroying practice, represents an irrational ‘behaviour gap’. Investors also risk trying to time the market and face the threat of not being invested during critical days of favourable market performance.

Momentum Outcome-based Solutions are built around helping your clients remain invested for long enough to reach their goals.

Source: I-Net Bridge

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Why don’t your clients get the best outcomes from their hard-earned wealth? Essentially two key factors contribute to your clients’ disappointment with their investment returns, namely:

1. The traditional investment approach (which is focused on peer and benchmark relative outperformance) and thus fails to incorporate your clients’ desired investment outcome(s);

2. Investor behaviour (the influence of psychology on how your clients make decisions and how common behavioural biases have been shown to sabotage their success). Especially in a world where not all the relevant information is accessible for effective decision making.

We aim to help investors make better decisions, whilst improving their probability of investment successOutcome-based investing seeks to proactively incorporate behavioural finance (the science of understanding behavioural influences) into a framework that is measured by how successfully and predictably your clients are able to achieve their unique goal(s).

An unwavering focus on your clients’ needs change how investment managers should think about their investment approachThe Momentum Outcome-based Investment approach integrates our deep history of traditional investment management excellence with our commitment to helping your clients make better decisions by utilising innovative portfolio construction and leveraging off our unrivaled understanding of behavioural finance principles. It is a unique way of investing that gives your clients access to the benefits of world-class asset-liability matching principles, historically only available to large institutional investors. This asset-liability matching process ensures that investments are chosen to be more in line with your clients’ specific goal(s), investment period and ultimately your clients’ attitude towards risk for that specific goal and/or investment need.

Outcome-based investing:• aligns your success with the financial wellness of your clients, • rewards you for spending more time with your clients to understand their goals and then

helps you match these goal(s) to an appropriate investment strategy capable of meeting their unique needs,

• provides your clients with peace of mind because it ensures that their investment journey offers as few surprises as possible, and delivers on the desired outcome with more certainty and predictability.

OK GoogleWhat is Momentum Outcome-based Investing?

Use Google Voice Search on your mobile or desktop.Or visit www.momentuminv.co.za/OBI to find the answer.

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How an outcome-based investment approach can improve youradvisory practice

Momentum Outcome-based Investing is an innovative approach to investing that will resonate with you and your advisory practice if you:

1. Want to spend more time with your clients focusing on the things that matter• Build deeper relationships and focus on building a business that helps your clients understand and meet their

essential needs, lifestyle wants and legacy aspirations rather than having to dedicate your time to research, fund selection and portfolio construction.

• Help your clients to avoid the trap of common behavioural biases such as chopping and changing their investments in response to the latest news or perhaps worse, chasing past performance.

• Enable your clients to benefit from the peace of mind of a smooth investment journey, knowing that they are able to tolerate market volatility without compromising their ability to achieve their own unique goal(s).

• Measure your advisory and business success by the number of clients that you help achieve their goals.

Let us assist you in focusing your energies on what matters - your clients

Adviser time spent Client’s value

Where advisers spend the majority of their time

What clients value most

Plan preparation

Admin and implementation

Productadvice

Datagathering and

analysis

Relationship management

Planpresentation

Ongoingreviews

Performance feedback

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2. Want to build your advisory business for a post-Retail Distribution Review (RDR) world• You are clear on your role being that of a professional adviser and coach rather than an analyst or fund manager.

• You wish to delegate the research, selection and combination of investment mandates to investment professionals. You are tired of attending investment manager ‘beauty parades’ for the purpose of picking the next best fund or investment manager (without any long-term guarantee of success).

• You don’t wish to spend your time unraveling complex technical investment jargon to motivate or defend a fund or investment manager choice to clients. You would rather help your clients manage their expectations and spend time coaching them on how to make better long-term decisions that positively influence their needs and goals.

• You are structuring your business for a post-RDR and Treating Customers Fairly (TCF) world – where transparency, client-centricity and the ability to show the value of your advice is central to you and your clients’ mutual success.

3. Are you excited about improving your own investment advisory processes• You believe that traditional investment reporting encourages the wrong client behaviour because it focuses on

price changes and risk metrics that aren’t necessarily aligned with their long-term success (in terms of your clients’ specific goals and the desired journey to achieve them).

• You know that it isn’t a trivial decision to match clients’ needs to the most suitable investment solution – never mind choosing and combining funds to implement the optimal investment approach.

• You believe that clients have different goals for different ‘pots’ of money and that their appetite for risk does vary, depending on the goal.

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How is outcome-based investing different to traditional investing?

Outcome-based investing puts the client-adviser relationship and financial planning at the centre of the investment process The idea behind outcome-based investing is that your clients should set specific, personal goals that they want to achieve and should then structure their investment plans around those goals.

More certain outcomes relative to client goalsWith outcome-based investing, instead of worrying about aiming for arbitrary investment benchmarks, your clients can set unique and personal goals that make sense to them. The power of an outcome-based approach lies in its ability to highlight how realistic a goal is relative to your clients’ risk preference and investment horizon, for the investment to achieve a specific goal utilising and within the investment opportunities available. It also helps you emphasise the importance of your clients separating their needs from their wants.

It embraces a more client-centric attitude to risk to encourage financial wellnessMost investors are willing to assume a higher level of risk for additional potential returns with money set aside for a holiday home (a ‘want’) compared with money they have set aside for university education for a child (a ‘need’). If the additional risk taken with the money set aside for the holiday house results in losses, your client could always adapt their ambitions. However, their thinking will be fundamentally different when it comes to their child’s university education. With Momentum Outcome-based Investing, traditional risk measures are therefore used alongside more investor and goal-based risk measures that incorporate factors such as:

• Willingness to take risk

• The ability to take risk

• The need to take risk to achieve a predefined outcome

This creates a new approach to portfolio construction and managementThere is an evolution in thinking about investment management. Momentum Outcome-based Investing challenges conventional thinking so that you as the financial adviser and your clients are better able to pursue their financial goal(s), whilst simultaneously managing risk. At the end of the day, Momentum Outcome-based Investing aims to take the stress out of trying to time the market.

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How the Momentum product rangefits into outcome-based investing

• Outcomes-based investing is an overarching philosophy and belief systemWe are applying this to all our investment capabilities. It is a way of thinking that puts investor goals and financial advisers at the center of our business.

• It is based on our brand promise of financial wellnessWe develop, manage and report on our investment capabilities in a way that helps investors remain invested for long enough to achieve their goals, we are helping your clients to achieve financial wellness and thus assisting your clients to have enough money for life’s journey.

• It is about the true alignment of your clients’ needs with our specialist investment expertise

At Momentum, we believe that true financial wellness is achieved when an investor’s portfolio enables them to reach their goals. Benchmarks such as stock and bond indices and peer comparisons can be useful tools for

evaluating portfolio performance, but they are limited and can unfortunately encourage the very behavioural mistakes that we want to help investors avoid.

By focusing on what matters to your clients on a personal level — goals like providing for a child’s education, a new home or income in retirement — helps you provide them with an investment solution that’s customised to meet their

unique set of needs and their goals.

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How it worksan overview of our

outcome-based investment approach

Investor Adviser

Benefits: • Allows your clients to focus on and

articulate their goals.

• Provides a personalised approach.

• Provides your clients with: • peace of mind • certainty • predictability• transparency

• Helps your clients to avoid making common, but costly mistakes.

Benefits: • Aligned with the six steps of

financial planning (FPI) – with an emphasis on knowing your client and understanding their needs.

• Enables you to meet RDR and TCF requirements.

• Is the ultimate client-centric approach to investing, because success is measured by the successful achievement of your clients’ goals.

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How we buildMomentum Outcome-based Solutions

Portfolio construction methodologies (much like markets) have evolved, people think differently, new ideas come to the fore, asset return profiles change, perceptions and understanding of different risk metrics differ and all of this leads to adaptive methodologies and techniques to account for the ever changing investment landscape.

Yet despite the ever-evolving investment challenges, one thing has remained remarkably consistent; all investments need to ultimately cater for and deliver on an investor’s needs.

At Momentum we have developed a market-leading investment process to deliver on investor’s expectations.

1. We analyse markets and strategies to comprehend how best to create a well-diversified solution with the optimal asset allocation.

2. We identify the most beneficial investment strategies to employ (including factors such as investment style, regional exposures, currency, economic environment, etc.)

3. Mandate design and selection (whether active or passive) is the final step in our comprehensive outcome-based investment process.

Innovative solution

Asset allocation

Investment strategy

Mandate selection

Each step in the investment process has been designed to ensure the highest probability of achieving an investor’s goal.

How we ensure that we deliver on investment outcomes

Asset allocation | Investment strategy | Mandate selection | Other

70% 15% 8% 7%

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What this meansfor you and your clients

Investor focusand responsibility

Adviser focusand responsibility

Momentum Investments focusand responsibility

It is important that your clients indicate a clear purpose for their money, which for most people may include:

1. Meeting their own essential spending needs?

2. Providing for their family needs, including education funding and estate planning?

3. Do they have community-related aspirations, such as charitable giving or do they wish to leave a legacy?

You as the financial adviser have an important role to play in terms of helping your clients improve financial wellness, namely:

1. Assist your clients by helping them understand their needs;

2. Help your clients articulate their needs into desired investment outcomes;

3. Facilitate regular reviews of their needs.

Providing robust investment solutions to meet your clients’ specific defined need(s).

Making sure that the solution delivers on the defined outcome (both in terms of an end goal and how the returns are achieved).

Providing you with the educational material, tools and communication available to both you and your clients to inform you both and equip you to make appropriate choices.

Assist your clients to avoid common behavioural biases and mistakes that have been shown to undermine investor results.

Providing your clients with reporting, performance and risk metrics that encourage disciplined investor behaviour to help them achieve their goals, rather than the traditional focus on price changes and performance relative to peers or a generic market index.

It’s all about having the right conversations.

Building on the purpose, you and your clients can work together to clearly define the goals they would like to achieve. When defining goals, three specific components are particularly relevant and will help them to determine how to best pursue each goal, namely:

1. Target value – the rand amount your clients need to achieve the specific goal(s).

2. Time horizon – when your clients will need the money for their goal(s)

3. Risk tolerance – your clients’ willingness and ability to take risk to pursue the particular goal.

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Investmentneed

Asset class exposure

Collective investment

scheme range

Othersolutions

Investment horizon

Returnobjective

Capital protectionand liquidity

Cash and cash equivalent solutions

Capitalprotection

Multi-asset fixed income solutions

Stableincome

Absolutereturn solutions

Real growth with capital protection

Real growth

Single-assetgrowth solutions

Moneymarket

Guaranteed endowments

Income Enhanced equity

Coreequity

Listed property

Directproperty

Momentum SP Reid Securities

Structuredproduct range

Enhancedgrowth fund

range

Targetgrowth fund

range

Absolutereturn range

Lifeannuities

Enhancedcash

Short term Medium term Long term

Deferredmaturity

STeFI + 0.5% to + 1.0% STeFI + 2.0% CPI + 2.0% to + 5.0%

Market relativeCPI + 3.0%to + 7.0%

An overview of ouroutcome-based investment solutions

Introducing South Africa’s first truly outcome-based solution range We recognise how difficult it is for you to choose investments that are capable of meeting your clients’ needs. We also understand that your clients’ needs and preferences are unique and that they are investing for something far more important than simply outperforming a generic market benchmark. In response, we have developed a world-class range of Momentum Outcome-based Solutions. These purpose built solutions comprise of a leading range of outcome-based collective investment schemes, guaranteed investments, personal share portfolios and structured products. Each of these solutions has been skillfully crafted to maximise the probability of achieving your clients’ goal(s).

Did you know?For your convenience, this document has been embedded with an innovative QR codeTM. Please use any mobile device to scan this QR codeTM to acquire further information on Momentum’s comprehensive Outcome-based Solution range.

Multi-assetgrowth solutions

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We have also developed a leading range of local collective investment schemes (CIS) that subscribe to our outcome-based investment philosophy.

Momentum Outcome-based Solution local portfolio range

Did you know?For your convenience, this document has been embedded with an innovative QR codeTM. Please use any mobile device to scan this QR codeTM to acquire further information on Momentum’s comprehensive Outcome-based Solution portfolio range.

Investment needCapital

protection and liquidity

Cash and cashplus solutions

MomentumMoney Market

Fund

MomentumEnhancedYield Fund

MomentumDiversified

Income Fund

MomentumDefensive

Growth Fund

Income

Multi-assetfixed income

solutions

Real growthwith capital protection

Absolutereturn

solutionsAsset class exposure

Investment objective STeFI + 0.5% STeFI + 1.0%to + 2.0%

CPI + 3.0%net of fees

Risk continuum

Investment horizon Short term

Cautious

Portfolio names

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MomentumEnhanced

Cautious GrowthFund of Funds

MomentumTarget Cautious

Growth Fundof Funds

MomentumEnhanced Stable

Growth Fundof Funds

MomentumTarget StableGrowth Fund

of Funds

MomentumEnhanced

Diversified Growth Fund of Funds

MomentumTarget Diversified

Growth Fundof Funds

MomentumEnhanced

Growth Fundof Funds

MomentumTarget Growth Fund of Funds

Momentum Enhanced

Growth PlusFund of Funds

MomentumReal GrowthEquity Fund

MomentumTarget GrowthPlus Fund of

Funds

MomentumReal GrowthCore Equity

Fund

MomentumReal Growth

PropertyFund

Single-asset growth

solutionsMulti-asset growth solutions

Long term capital growth

CPI + 2.0%net of fees

CPI + 3.0%net of fees

CPI + 4.0%net of fees

CPI + 5.0%net of fees

CPI + 6.0%net of fees

Marketrelative

Medium term

Moderate

Long term

Aggressive

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Terms and conditions apply.Momentum, a division of MMI Group Limited, an authorised financial services and credit provider. www.momentum.co.za

Why Momentum?As South Africa’s leading outcome-based investment manager, Momentum helps thousands of people and some of the country’s largest institutions achieve their investment goals.

Momentum offers the following outcome-based investments:

• A comprehensive range of innovative solutions, including the Momentum Enhanced and Target Fund of Fund ranges.

• Enhanced certainty through a sophisticated range of guaranteed solutions including the Momentum Growth Enhancer.

• Access to a wide range of share portfolios through Momentum Securities.

• The ability to partner with financial advisory practices to build bespoke and scalable outcome-based solutions through Momentum Investment Consulting.

Want to know more?

Contact your Momentum Marketing Adviser Call us on 0860 546 533www.momentum.co.za

Momentum Investments (Pty) Ltd268 West Avenue Centurion 0157 PO Box 7400 Centurion 0046

www.momentum.co.za/collectiveinvestmentsRegistration number: 2010/021352/07

DisclosureCollective investment schemes in securities are generally medium- to long-term investments. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. The manager does not provide any guarantee, either with respect to the capital or the return of a portfolio. For certain portfolios the manager has the right to close these portfolios to new investors to manage them more efficiently, in accordance with their mandates. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. The collective investment scheme may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. Different classes of participatory interests apply to these portfolios and are subject to different fees and charges. A schedule of fees, charges and maximum commissions is available on request from the manager, or is available on the website (www.momentum.co.za/collectiveinvestments). Forward pricing is used. MMI Holdings Limited is a full member of the Association for Savings and Investment South Africa. The complaints policy and procedure and the conflicts of interest management policy are available on Momentum Collective Investment’s (RF) (Pty) Ltd website at (www.momentum.co.za/collectiveinvestments). Associates of the manager may be invested within certain portfolios and the details thereof are available from the manager.

Foreign securities within portfolios may have additional material risks, depending on the specific risks affecting that country. A money market portfolio is not a bank deposit account. The price of a Momentum Money Market Fund participatory interest is targeted at a constant value. For money market portfolios the total return to the investor is made up of interest received and any gain or loss made on any particular instrument, and in most cases the return will merely have the effect of increasing or decreasing the daily yield, but in the case of abnormal losses, it can have the effect of reducing the capital value of the portfolio. For money market portfolios excessive withdrawals from the portfolio may place the portfolio under liquidity pressures, and in such circumstances a process of ring-fencing of withdrawal instructions and managed pay-outs over time may be followed. The Momentum Money Market Fund yield illustrated in our minimum disclosure documents and quoted daily in the press is the 7-day rolling effective yield. Bond and income yields quoted in the press are historical yields based on distributions and income accruals calculated monthly while those quoted in the Weekly Income Fund Yield Summary are current running yields calculated weekly.

A fund of funds is a portfolio that invests in portfolios of collective investment schemes that levy their own charges, which could result in a higher fee structure for the fund of funds.

The investment manager of the portfolios pertaining to this brochure is Momentum Outcome-based Solutions (Pty) Ltd, registration number 2004/023064/07, address 268 West Avenue Centurion 0157 is an authorised financial services provider in terms of Section 8 of the Financial Advisory and Intermediary Services Act, 37 of 2002 (FAIS Act), as amended, FSP licence number 19840. This information is not advice as defined and contemplated in the FAIS Act. Momentum Outcome-based Solutions (Pty) Ltd is also registered as an administrator in terms of Section 13B of the Pension Funds Act, registration number 24/401.