For some years now, we have cautioned that returns from SA assets in the coming decade will be lower than in the past era. 

This has implications for the expected returns delivered by various investment products – and confirms the importance of generating alpha (active return) through stock selection and asset allocation.

It is clear that we are living in a much more volatile environment, with tougher economic conditions. We believe this represents a risk that asset prices may not deliver the same significant real returns as they have done in the past. This is already evident in the recent three-year returns from local equities, which have performed largely in line with inflation (as at end-September).

Given lower expected returns from the relevant asset classes, we believe the real return targets of our absolute return strategies should be adjusted to reflect this reality and to manage the expectations and behaviour of savers accordingly. The effective changes are indicated in the following table.

​

It is important to highlight that these adjustments will not have any impact on how we manage these strategies. In fact, there is a keen awareness of the need to produce as much risk-adjusted returns as available and possible. Active management with integrated risk management will help achieve the best outcome for savers. But we must all be aware of the new environment in which we find ourselves.