Newsletter • Quarter 2 • 2023
Portfolio Performance
Focus on the long term
Unless you are close to retirement (over the age of 57), when saving for your retirement, you must focus on the long term when looking at the investment performance of your retirement savings.
Over the same period, the Balanced Growth Portfolio earned a return higher than the Index Reference Portfolio (even after deducting investment management fees). This means the Fund's investment strategy is adding value and is greater than the fees paid to implement the strategy.
Short-term returns are driven by current events, supply and demand factors, and the 'noise' in investment markets. These day-to-day events are unpredictable, just like the effect they have on market performance.
When developing the investment strategy of the Fund, it is important to provide a return that is substantially higher than inflation over the long term. There are different types of investments that may be included in the Fund's strategy.
Infrastructure is a particular type of investment that aims to achieve returns higher than inflation over the long term.
We have included local infrastructure assets in our strategy
The Woolworths Group Retirement Fund invested in a local infrastructure fund in early 2021. The projects typically included in this portfolio are renewable energy projects such as wind, solar and hydro energy, digital infrastructure such as fibre connectivity, and toll roads.
The reasons for investing in local infrastructure:
- Infrastructure plays a critical role in the economy and is the foundation on which any economic activity is based. Both the COVID-related lockdowns and loadshedding have clearly demonstrated the essential nature of infrastructure to our daily lives and the functioning of the economy on the whole.
- Given the fundamental role that infrastructure plays in the economy, infrastructure investments, such as well-managed renewable energy projects, tend to hold up positively against economic downturns.
- Once the infrastructure is in place, the income generated by the assets is generally attractive, secure, predictable and long term. This means the returns are specifically structured to exceed inflation over time. These characteristics make infrastructure a good fit for our Fund.
- Infrastructure assets provide social benefits and contribute not only to the economy but also to the well-being of communities. Renewable energy, for example, provides clean energy and improves the supply of energy, which we need in South Africa. This also fits well with the Woolworths values on sustainability. Good infrastructure provides the foundation for the economy to function and grow.
Are there any risks in local infrastructure assets?
- Infrastructure projects may have higher-than-expected development or maintenance costs.
- The assets may be poorly managed or maintained.
- New regulations may negatively affect the performance or operations of the investment.
- Technology innovation may result in the infrastructure becoming obsolete.
Adding value to the Fund
The Fund's trustees and investment committee exercised due diligence on the infrastructure investment opportunity and decided that the potential benefits outweighed the risks. They made a small allocation to the Stanlib Infrastructure Fund.
Since investing in February 2021, the investment has added value to the Fund's performance, with a return of 9.4% per year. Please note that this is a short period to assess performance, especially since infrastructure is long-term in its nature.
In February 2023, the Fund also invested in a global listed infrastructure strategy. This strategy is managed by Atlas Infrastructure, a specialist global manager. The strategy typically invests in worldwide energy generation and gas, airport infrastructure, water infrastructure, communications, railways and toll roads.
Over the next decade, our investments in infrastructure should offer stable, inflation-beating and diversified returns to the investment performance of the Fund.
Also, infrastructure will provide the backbone necessary for economic activity to flourish, which will have a positive impact on the Fund's other investments.
DO not withdraw your savings until you retire.