Many South African investors who prefer conservative money market investments find themselves in financial limbo when interest rates drop – as has already happened twice this year.
These investors – many of them retirees – are seeing their purchasing power erode while their “safe” investments fail to provide the income they need to maintain their lifestyle.
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But what if there were a solution that could deliver meaningful returns without sacrificing security?
It was with this dilemma in mind that the Jenwil Wealth Flexible Income Wrap Fund was devised – a sophisticated investment solution designed to bridge the gap between conservative money market investments and higher-risk growth strategies.
The income dilemma
The current financial landscape presents a challenging situation. As expected, the South African Reserve Bank (Sarb) recently lowered interest rates by another 25 basis points, with the repo rate now reduced to 7% – the lowest level since 2022.
In this environment, the security offered by investments in money market funds offer disappointing returns that often lag behind inflation. As interest rates decline, the reward for holding cash diminishes. Meanwhile, equity investments promise higher returns, but they come with a level of volatility that many conservative investors – particularly those approaching or in retirement – simply cannot stomach.
Yet, over time, the greatest risk to your investment may be taking too little risk. Inflation neutralises all growth in purchasing power.
It’s important not to confuse volatility with risk. Volatility refers to the daily fluctuations in an investment’s value over its term, whereas risk relates to the range of possible outcomes at the end of the investment period.
Designed to outperform traditional money market investments
The Jenwil Wealth Flexible Income Wrap Fund offers a compelling solution to this investment dilemma. By combining the security that conservative investors seek with the return potential they need, the fund provides a strategic alternative that doesn’t force investors to compromise on their fundamental requirements.
This innovative wrap fund is specifically designed to outperform traditional money market investments, all while maintaining a conservative risk profile. Its goal is to deliver real growth that protects investors against inflation, while generating meaningful income.
Consider the following scenario: the money market is expected to deliver between 6.5% and 7.5% over the next two years, so the risk is a difference in outcome of 1%.
In contrast, income funds are likely to deliver between 6.5% and 9%. The difference is thus greater than in money market, but the bottom expectation for two years is the same as in the money market. What we therefore observe over the next 24 months is not more risk, just more volatility.
Over five years, an income fund will deliver inflation plus 3% on average, while money market usually only gives inflation plus 0.5% to 1%.
How the fund reduces your risk
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The fund operates on a wrap structure, which essentially means your investment is professionally managed across multiple underlying funds, rather than being limited to a single investment strategy. Think of it as having a team of specialist fund managers working together to optimise your returns.
What sets this fund apart is its multi-manager approach. Instead of putting all your eggs in one basket, the fund spreads investments across various income-oriented strategies, managed by different specialist fund managers. This diversification reduces the risk associated with any single manager’s performance, while capturing opportunities across different income-generating assets.
Figure 1: Conservative asset allocation strategy
As illustrated in the pie chart above, the fund maintains a conservative asset allocation strategy, with a maximum equity exposure of just 10%. This means that 90% of your investment remains in income-focused assets such as bonds and cash instruments. This careful balance allows for enhanced returns compared to money market funds, while keeping risk at acceptable levels for conservative investors.
Impressive performance track record
Over the past two years, the fund has delivered an annualised return of 11.69% – significantly outperforming traditional money market alternatives. Perhaps more importantly for risk-averse investors, the fund has demonstrated remarkable stability, with a maximum drawdown of just -0.24%.
The numbers speak for themselves. This performance consistency makes the fund particularly attractive for investors seeking predictable income streams without the sleepless nights often associated with more volatile investments.
Figure 2: Cumulative performance comparison
The graph above illustrates the Jenwil Wealth Flexible Income Wrap Fund’s cumulative performance over two years compared to benchmarks, demonstrating consistent outperformance throughout the investment period.
Coming next week: Unlock hidden tax savings
Beyond performance, the wrap fund structure offers compelling tax advantages that could significantly boost your after-tax returns. In next week’s article, we’ll reveal exactly how much tax you could save and explain why the tax benefits alone might justify your investment decision. From capital gains tax efficiency to retirement fund advantages – discover the hidden value that could make all the difference to your investment returns.