Sygnia set to shake up South Africa’s passive investment arena with massive fee cuts
Asset management entrepreneur Magda Wierzycka is set to shake up the financial services sector by making a move that could spark a price war between index tracker fund providers. She has decided to build her company, Sygnia, into South Africa's biggest passive asset manager, starting by undercutting competitors and making index-tracking funds very attractive for investors.
Read her full announcement below. She speaks to Biznewz editor-in-chief Alec Hogg on CNBC Africa today. A recording of the interview, and a transcript, will be published later this week on Biznewz.com.
Sygnia's strategy: the details
Sygnia is the second-largest institutional multi-manager company in South Africa with assets under management in excess of R100 billion. Since 2003 Sygnia has provided multi-manager products, index-tracking products and investment administration services to the retirement funds market. Sygnia's reputation for outstanding service has been based on a combination of strong performance, innovation and leading-edge technology platforms.
Individual investors can access a wide range of index-tracking, or passively-managed, unit trusts through Sygnia. These include the Sygnia Top 40 Index Tracker, the Sygnia Divi Index Tracker, the Sygnia Listed Property Index Tracker and the Sygnia Skeleton Balanced Fund, the first entirely passively- managed multi-asset class product in the unit trust arena.
Index tracking is widely used by international investors, with over US$7 trillion managed on this basis globally. Leading index-tracking managers such as BlackRock, State Street Global and Vanguard have grown their assets exponentially over the past decade. In South Africa the amounts managed on a passive basis remain negligible, to the extent that National Treasury felt they needed to strongly encourage such investments in the "Charges in South African Retirement Funds" discussion paper released for public comment in July 2013. To quote the National Treasury:
"Over the long term, in efficient markets, passive management is not demonstrably inferior to active management, and it is significantly cheaper."
"A lump-sum investor in the passive fund would save 10% of his capital over five years in fees."
Sygnia has entered the retail market in a move described as a "game changer" by Magda Wierzycka. "We have set ourselves the objective of becoming the largest passive asset manager in South Africa. To achieve that we need to offer our investors the best possible value proposition, both in terms of performance and cost. Consequently we have entered the retail market with the lowest fee structure of any financial services company in the country. All our products are priced at 0.40% per annum (including VAT)."
*TER – latest disclosed total expense ratio
Source: I-Net and relevant websites
In addition to its unit trusts, Sygnia has also launched a range of savings products, including retirement annuities, preservation funds, living annuities and endowments. Investors can access Sygnia's index- tracking funds directly or by utilizing Sygnia's savings products. The cost remains the same, 0.40% per annum.
This is revolutionary pricing in the context of the cost of saving in South Africa. In comparison, our competitors offer the following (most index-tracking strategies are offered through exchange traded funds):
If one assumes that the same R1 million is invested for a period of 10 years and accumulated at the average return achieved by a South African retirement fund as per the Alexander Forbes Global Large Manager Watch survey to 31 August 2013 (17,82% pa), the effect of costs on final value of one's investment becomes more obvious.
Index-tracking funds are typically used as a core investment strategy, with the balance of the assets distributed to more expensive actively-managed funds. "We expect most of our investors to use Sygnia's index-trackers as a cheap way of buying diversified market exposure, while adding actively-managed products to the mix to seek market outperformance", says Wierzycka. "To facilitate that, Sygnia has added a LISP platform to its offering. Through the Sygnia Alchemy Platform our investors can access products outside of the Sygnia stable, including big brand name active asset managers such as Coronation, Allan Gray and Investec. This offers clients the best of both worlds; reasonably priced index- tracker funds and best of breed active managers."
All unit trusts, other than Allan Gray, are offered on a clean unit price basis. This is the first in South Africa as all discounts have been passed onto investors in a transparent manner.
Sygnia, as a multi-manager with a ten year track record, researches all the asset management houses in South Africa. The unit trusts included on the Sygnia Alchemy Platform, represent only the funds that have passed Sygnia's rigorous due diligence process and that Sygnia will unhesitatingly endorse.
The final innovation is the Sygnia Alchemy Platform. Investors can access an unprecedented amount of investment information on a live basis, plan for their financial future and make informed decisions using this platform. The financial advisors' version of the platform provides a suite of investment tools designed to help in the provision of professional advice.
"Our retail offering has been designed to change the financial services industry for the better, a challenge laid down by the National Treasury in its recent reform papers. We embrace it", says Wierzycka.