Super, steady and secure
Ian Slattery explains why 2016 marked another good year for Zurich's flagship SuperCAPP fund as it continued to provide long-term investors with exposure to growth assets while remaining well insulated from volatile markets.
Over its almost 40 year history, SuperCAPP is one of our most popular and strongest selling funds, and remains one of our largest funds with over €1.6bn in assets*.
SuperCAPP aims to deliver a regular return to policyholders and has the potential to be inflation beating and to deliver higher growth than a deposit or cash investment over the long-term. SuperCAPP has consistently delivered this and more. In fact it is a fund that is unique within the Irish market, and has delivered a positive return in every one of its 39 years since inception.
The current market environment leaves low to medium risk investors with limited options. With this in mind, we are proud to point to the consistently positive, long-term track record and the range of investment guarantees applicable to SuperCAPP investors.
SuperCAPP delivers something different and at Zurich we see this fund as a vital part of our overall investment proposition. The current outlook for major asset classes can lead to difficult questions for those with a low appetite for risk. For many investors, SuperCAPP may be the answer.
SuperCAPP is a simple way for those with a lower risk appetite to achieve exposure to equities - but with downside protection. The equity portfolio (approximately 20%-30% of the fund) is hedged using financial instruments called collars. The use of collars aims to deliver more stable and smoothed returns to our policyholders, by minimising the effect of large gains and large losses on the equity portion of the fund.
The balance of the fund is invested in high quality European government bonds, currently consisting mainly of French, German and Austrian bonds. The bond portfolio also has a hedging strategy in place, enabling SuperCAPP to offer the yield on its bond portfolio as its annual dividend and also to allow its policyholders to gain comfort in the protection against potential future drops in bond capital values.
Best in Class
Strong governance, a prudent investment strategy and the quality of our fund managers are some of the main selling points of the SuperCAPP fund. Zurich has a reputation for exceling in multi-asset investing. For over 25 years, our wide range of multi-asset funds have strongly outperformed competitors in the market - driven primarily by our active management and focus on asset allocation.
Zurich Investments manage both the equity and bond portfolios specifically for SuperCAPP investors and each has performed strongly against benchmark levels.
The applicable interim annual dividends have been declared for the coming year and are now currently running at 0.75% per annum. In the context of the current low yield environment and with inflation still hovering near zero, this represents a good annual return for policyholders with the potential for a special dividend to come after five years invested in the fund.
Special Dividends have been increasing steadily over the past number of years and at the most recent declaration on 1 November, the single premium special dividend for investors since 2009 now stands at 14%, having moved upwards from 11% last year. In the context of the uncertain times that have been evident in markets over recent years, this shows the stability and growth on offer for investments in SuperCAPP.
SuperCAPP is a fund that is designed to work in lots of different market scenarios. In relation to the current interest rate environment we have a combination of assets in the fund which allow us to pay an annual dividend in different market conditions. We are not market forecasters and don't have the ability to know where interest rates are going to be, but the set of assets contained in SuperCAPP allows us to protect the fund from falls in the capital values of bonds. It is also that combination of assets that allows us to take advantage of a market environment where yields are rising.
Our belief currently is that the multi-decade downward trend in interest rates is coming to an end. And although this process could persist for a period of time we have the mechanisms in place within the fund, specifically interest rate payer swaptions (a derivative instrument), which rise in value as the price of bonds fall.
Rising Special Dividends and consistent performance has made the SuperCAPP a focus of attention these last number of months. SuperCAPP has proven to be a suitable choice for some investors across our product ranges. Indeed, the role SuperCAPP can play in the portfolio of a low to medium risk investors should not be underestimated.
*Source Zurich Life, April 2017
About: Zurich Investments
Ian Slattery is an Investment Consultant at Zurich Life. The team at Zurich Investments is a long established and highly experienced team of investment managers who manage approximately €21.5bn in investments of which pension assets amount to €9.7bn. Find out more about Zurich Life's funds and investments here.