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Sequence of return risk in South African post-retirement portfolios: the effectiveness of volatility-focused asset allocation strategies to address sequence and associated risks
Sequence of return risk (which is the risk of unfavourable investment outcomes at the most unfavourable time) is an important consideration for efficiently funding retirement portfolio spending goals. This study examines the sensitivity of retirement decumulation portfolios to sequence of return ris...
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| Format: | Thesis |
| Language: | English |
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Department of Finance and Tax
2022
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| _version_ | 1867613222506332160 |
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| access_status_str | Open Access |
| author | Schabort, Kilian Petika |
| author2 | West, Darron |
| author_browse | Schabort, Kilian Petika West, Darron |
| author_facet | West, Darron Schabort, Kilian Petika |
| author_sort | Schabort, Kilian Petika |
| collection | Thesis |
| description | Sequence of return risk (which is the risk of unfavourable investment outcomes at the most unfavourable time) is an important consideration for efficiently funding retirement portfolio spending goals. This study examines the sensitivity of retirement decumulation portfolios to sequence of return risk (“SOR risk”, also referred to as “sequence risk”) in a South African context and evaluates the effectiveness of five volatility-focused asset allocation strategies in addressing the risk. Using monthly asset index returns separated into bull and bear market regimes for the period 1991 to 2020, correlated non-normal returns were simulated and combined with independently simulated inflation to generate 10 000 independent 30-year simulation trials. The performance of each of the five strategies was measured against a benchmark set of portfolios using simulated data and was validated using partial out-of-sample historical data. Performance was assessed using the sustainable withdrawal rate (SWR) and actuarial coverage ratio (ACR) metrics. The sensitivity results showed that SOR is greatest at the retirement date, declining asymptotically (halving within the first ten years of retirement). The geographic diversification strategy showed clear benefit to reducing SOR whereas the results for the risk parity strategy were not conclusive. The analysis and comparison of the lowrisk, rising equity glidepath, and dynamic cash buffer strategies formed the focus of the study. All three showed considerable SOR potential with the dynamic cash buffer strategy outperforming the others and substantially reducing SOR relative to the benchmark. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/36552 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:32:42.829Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2022 |
| publishDateRange | 2022 |
| publishDateSort | 2022 |
| publisher | Department of Finance and Tax |
| publisherStr | Department of Finance and Tax |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/36552 Sequence of return risk in South African post-retirement portfolios: the effectiveness of volatility-focused asset allocation strategies to address sequence and associated risks Schabort, Kilian Petika West, Darron finance and tax Sequence of return risk (which is the risk of unfavourable investment outcomes at the most unfavourable time) is an important consideration for efficiently funding retirement portfolio spending goals. This study examines the sensitivity of retirement decumulation portfolios to sequence of return risk (“SOR risk”, also referred to as “sequence risk”) in a South African context and evaluates the effectiveness of five volatility-focused asset allocation strategies in addressing the risk. Using monthly asset index returns separated into bull and bear market regimes for the period 1991 to 2020, correlated non-normal returns were simulated and combined with independently simulated inflation to generate 10 000 independent 30-year simulation trials. The performance of each of the five strategies was measured against a benchmark set of portfolios using simulated data and was validated using partial out-of-sample historical data. Performance was assessed using the sustainable withdrawal rate (SWR) and actuarial coverage ratio (ACR) metrics. The sensitivity results showed that SOR is greatest at the retirement date, declining asymptotically (halving within the first ten years of retirement). The geographic diversification strategy showed clear benefit to reducing SOR whereas the results for the risk parity strategy were not conclusive. The analysis and comparison of the lowrisk, rising equity glidepath, and dynamic cash buffer strategies formed the focus of the study. All three showed considerable SOR potential with the dynamic cash buffer strategy outperforming the others and substantially reducing SOR relative to the benchmark. 2022-06-29T08:22:31Z 2022-06-29T08:22:31Z 2022 2022-06-28T09:15:11Z Master Thesis Masters MCom http://hdl.handle.net/11427/36552 eng application/pdf Department of Finance and Tax Faculty of Commerce |
| spellingShingle | finance and tax Schabort, Kilian Petika Sequence of return risk in South African post-retirement portfolios: the effectiveness of volatility-focused asset allocation strategies to address sequence and associated risks |
| thesis_degree_str | Master's |
| title | Sequence of return risk in South African post-retirement portfolios: the effectiveness of volatility-focused asset allocation strategies to address sequence and associated risks |
| title_full | Sequence of return risk in South African post-retirement portfolios: the effectiveness of volatility-focused asset allocation strategies to address sequence and associated risks |
| title_fullStr | Sequence of return risk in South African post-retirement portfolios: the effectiveness of volatility-focused asset allocation strategies to address sequence and associated risks |
| title_full_unstemmed | Sequence of return risk in South African post-retirement portfolios: the effectiveness of volatility-focused asset allocation strategies to address sequence and associated risks |
| title_short | Sequence of return risk in South African post-retirement portfolios: the effectiveness of volatility-focused asset allocation strategies to address sequence and associated risks |
| title_sort | sequence of return risk in south african post retirement portfolios the effectiveness of volatility focused asset allocation strategies to address sequence and associated risks |
| topic | finance and tax |
| url | http://hdl.handle.net/11427/36552 |
| work_keys_str_mv | AT schabortkilianpetika sequenceofreturnriskinsouthafricanpostretirementportfoliostheeffectivenessofvolatilityfocusedassetallocationstrategiestoaddresssequenceandassociatedrisks |