Performance is everything and the numbers tell the story

This content is sponsored by 10X Investments

By Steven Nathan

When 10X Investments was launched, many people within and outside of the asset management industry were sceptical about the model. They said: “It can’t be that simple”; “You can’t charge fees that low”; “Index funds don’t work in South Africa”; “It’s not about costs, but performance”. After 11 years – which have included some turbulent times, including the 2008 Global Financial Crisis – the numbers tell a different story.

Performance is the only thing that matters to investors – and it is best measured as their long-term investment return after all fees charged.

Most 10X clients are invested in our High Equity product, as their time horizon is more than five years. Below we compare returns against the largest and most popular investment managers[1]. As illustrated by the graphs, 10X performs extremely competitively even before the fee differential is taken into account.

R100 invested in the 10X High Equity product in January 2008 would have grown to R297 at 28 February 2019 versus R280 with the average large fund manager. Over the 11-year period, 10X returned 10.2% pa versus 9.7% pa for the average large fund manager. These returns are before fees.

10X’s superior investment track record

 

The average retail investor pays an estimated 3% in fees, comprising advice (0.75% plus VAT), administration/LISP platform (0.5% plus VAT) and investment management (1.5%). 10X charges retail investors one fee ranging from 0.3% to 0.9% plus VAT, based on the product and the investment balance.

The tables below show the investor return after 10X’s maximum fee of 1.0% (incl. VAT) and the industry average of 3.1% (incl. VAT). Over just 11 years, 10X’s investment value of R264 after our maximum fee of 1.0% (incl. VAT) is 34% higher than the average fund manager with an estimated average 3% fee.

The chart illustrates the importance of fees on your long-term investment. A 1% fee reduces 10X’s investment value at February 2019 from R297 to R264 but has a far more severe impact on the higher fee investments. The Manager Average investment value of R280 pre-fees falls to R197 after a 3.1% fee.

No one can guarantee continued investment outperformance but we can guarantee that 10X’s lower fees will continue to add substantial value compared with higher fee alternatives. We are confident that 10X’s simple, low cost and transparent model will continue to help more South Africans retire with more money over the next 11 years and beyond.

Helping people retire with dignity

We started 10X in 2008 to help people retire with dignity. This may sound clichéd as all investment companies say similar things about how much they care about their clients. While all investment companies talk the talk, very few walk the talk.

The retirement industry is failing consumers

Before staring 10X, I spent over a decade as an industry insider, analysing and advising banks, life companies and asset managers in South Africa and globally. It became apparent to me that the retirement industry was driven by its own financial wellbeing and not the consumers’. The industry’s poor practices made it very difficult, and sometimes impossible, for people to retire with adequate financial provision. These same practices enrich brokers, fund managers and others in the industry.

It is true that many people don’t save enough towards retirement or cash in their savings along the way. These people are almost guaranteed to retire poor. However, diligent savers will also struggle to retire comfortably by entrusting their savings to an industry that is complex, expensive and performs poorly. Simply put, most consumers will be invested in under-performing portfolios and pay high fees, which can destroy your retirement.

While the industry is regulated, there are no laws governing the three factors that are most likely to destroy your retirement ie. costs, under-performing fund managers and switching funds to chase past performance. Regulation may protect you from losing all your money at once but not from losing most of your money over time.

Every option but no solution

The retirement industry benefits from being complex as this disempowers consumers and allows its performance, or lack thereof, to go unchecked. The industry loves to tell people how complex investing is, that there are so many factors to consider: the markets are risky, there is political risk, global risk, Brexit, Trump, trade wars etc. You are told there is no one best long-term investment portfolio for you. You are offered more than 1,000 different portfolios and advised to engage a broker to help you navigate the complexity. The most frequent result is that you end up paying high fees while investing in under-performing funds.

The single best solution for YOU

Warren Buffet said: “I would rather be approximately right, than completely wrong.” At 10X, we follow this approach. There is no perfect portfolio that delivers superior returns every year. However, there are proven investment principles that deliver superior long-term results for most investors. 10X thus developed a single investment strategy for all clients, consisting of three proven investment principles.

  1. Time drives your investment risk. The longer your time horizon, the more you should invest in growth assets like shares as your main goal is capital growth and you have time to recover from poor markets.
  2. Index funds beat most active funds and provide superior risk-adjusted returns.
  3. Minimise total fees. Each 1% fee saved increases your investment by almost 50% over 40 years.

These investment principles are simple to understand and verify. The irony is that what is good for you is often bad for the industry. A simple solution does not serve the industry and its vast army of helpers. How much advice do you need to explain and monitor a simple solution? How much should you pay a fund manager?

[1] Using the Alexander Forbes Global Manager Watch Retirement Survey, Best Investment View and the returns of 10X’s retirement portfolio.