Investing is like a shopping centre
FINWEEK APPROACHED leading portfolio manager Paul Swanson, of asset management firm Stanlib, for his thoughts about how a portfolio should be put together, especially in this trying market. “Before constructing a portfolio you should revisit the basic principle of investing: earning real returns over the long term,” says Swanson, meaning growth assets that will ultimately outpace inflation.
However, Swanson cautions that doesn’t mean simply putting money in stocks currently going through a growth cycle but rather to build a diversified portfolio through exposure to different asset classes: namely, equities, bonds, properties and cash, with some offshore assets.
For many investors that can sound quite daunting. However, Swanson simplifies that for our readers, drawing an analogy between building a portfolio and your local shopping mall. He says within the “shopping mall” of the Stanlib Balanced Funds its “anchor tenant” is equities (with a 58% weighting). “Line shops” consist of a 3,6% weighting in property, 10,4% in bonds, 8,6% in cash and just more than 15% in offshore.
He breaks down the Stanlib portfolio into the three main classes: resources, financial and industrial companies.
In the resources sector, the fund favours two big names – Anglo American and BHP Billiton – from an anchor perspective and a growth stock, such as Exxaro. Pointing to Anglo and BHP Billiton, Swanson says: “We like the diversity of the commodities they have and their cashflow generation, and Anglo has also just reinstituted its dividends, which is positive.”
In terms of Exarro, he says Stanlib likes it, as it has massive reserves in the Waterberg area and the coal is of good quality and can be exported, or used by Eskom.
Like any good shopping mall, the banking groups in the financial sector are well represented and Stanlib has invested in all of SA’s Big Four: Absa, FirstRand, Nedbank and Standard Bank. The reason, says Swanson, is that valuations look appealing and all have large exposures to the SA consumer.
“Our reasoning is that as the SA consumer recovers and strengthens there will be a stronger demand for credit and fewer bad debts, thereby enhancing their earnings profile,” he says.
For industrial, every shopping centre needs a good retailer, particularly if you’re banking on a recovery in consumer spending. “We have a large exposure to retailers, including Pick n Pay and Woolworths,” says Swanson, the reason being both have the ability to cut costs internally and also because there will be top line growth as volumes increase.
Finally, no shopping mall is complete without a Vodacom or MTN shop and Stanlib’s funds are no different, including both mobile providers in its balanced portfolios. “We like their growth profile and cash flow generation abilities. Both businesses are now paying large dividends back to shareholders, which we find appealing,” Swanson says.