Bal­ance

Finweek English Edition - - INSIGHT - IN­VESTORS HAD AL­MOST R1.5TR

MULTI-AS­SET IN THE LEAD Cam­pher says the South African mul­ti­as­set cat­e­gory re­mains the dar­ling of in­vestors. Asisa re­ported that R113bn of net in­flows were di­rected into the multi-as­set cat­e­gory in 2013 and of that R46.2bn (41%) into the mul­ti­as­set, high-eq­uity portfolios.

Off­shore in­vestors tend to be pre­pared to stomach a lit­tle more vo­latil­ity, opt­ing pre­dom­i­nantly for eq­uity funds, fol­lowed by bond funds and then bal­anced funds.

Tony Ca­dle, head of port­fo­lio con­struc­tion at Ash­bur­ton In­vest­ments, says that South African in­vestors are pos­si­bly more risk averse.

How­ever, mit­i­gat­ing risk within a fund does not al­ways have to mean sac­ri­fic­ing re­turns. A strate­gi­cally bal­anced in­vest­ment ap­proach should en­able a fund man­ager to di­ver­sify away risk while still al­low­ing for po­ten­tial upside par­tic­i­pa­tion in the riskier in­vested with the lo­cal col­lec­tive in­vest­ment schemes (CIS) in­dus­try at the end of De­cem­ber 2013 – more than dou­ble the R661bn in­vested only five years ago.

The 2013 CIS in­dus­try sta­tis­tics re­leased by the As­so­ci­a­tion for Sav­ings and In­vest­ment South Africa (Asisa) also show that over the past 10 years the in­dus­try has seen as­sets un­der man­age­ment in­crease five­fold.

Leon Cam­pher, CEO of Asisa, says that while the strong run of the eq­uity mar­ket has cer­tainly played a role in the growth of CIS as­sets, un­prece­dented net quar­terly in­flows in re­cent years strongly bol­stered as­sets un­der man­age­ment.

as­set classes. FIND­ING BAL­ANCE Ac­cord­ing to Her­man van Velze, head of bal­anced funds at Stan­lib, bal­anced funds are well-suited to re­duce vo­latil­ity through di­ver­si­fi­ca­tion across the var­i­ous as­set classes. “In ad­di­tion to get­ting ex­po­sure to var­i­ous as­set classes, the fund man­ager de­cides on as­set al­lo­ca­tion, thus alle­vi­at­ing re­spon­si­bil­ity on the in­vestor.”

Ca­dle says that bal­anced funds are ap­peal­ing from both an in­vestor and an ad­viser per­spec­tive as they dis­charge the re­spon­si­bil­ity of as­set­class di­ver­si­fi­ca­tion to a pro­fes­sional fund man­ager and pro­vide – over a three- to five-year pe­riod – a real re­turn to in­vestors.

These re­turns have been achieved through al­lo­ca­tions to lo­cal and global in­vest­ments in as­set classes such as eq­uity, bonds, property and cash. The in­vestor thus achieves an ac­tively man­aged as­set-class and ge­o­graphic di­ver­si­fi­ca­tion with rel­a­tively low vo­latil­ity.

Here’s an ex­am­ple: as­sum­ing in 2008, dur­ing the sub-prime fi­nan­cial cri­sis, a bal­anced fund was con­structed with 80% South African as­sets and 20% off­shore as­sets in the ra­tio 60% eq­uity, 25% bonds and 15% cash (us­ing in­dex re­turns), the fund would have de­clined around 15%. Within a year the in­vestor would have re­couped the 15% loss. Com­pare this to many global eq­uity mar­kets that have taken about five years to re­gain their 2008 highs. CON­SIDER WHEN IT COMES TO IN­VEST­ING IN BAL­ANCED FUNDS Says Van Velze: “As the fund man­ager makes the as­set al­lo­ca­tion calls within the fund, an in­vestor should con­sider the man­ager’s ex­pe­ri­ence and track record when pick­ing a fund. Also, hav­ing a solid re­search team to sup­port the fund man­ager’s and guide them in their as­set al­lo­ca­tion de­ci­sions is im­por­tant.”

As with most i nvest­ments the magic re­ally hap­pens when har­mony ex­ists be­tween the stated fund ob­jec­tive (when achieved) and the needs of the in­vestors.

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