Mall bets

In­vest­ing is like a shop­ping cen­tre

Finweek English Edition - - Money Clinic - MARC ASH­TON marca@fin­

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.


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