May ’97 May ’99 May ’01 May ’03 May ’05 A − Coronation − Balanced Plus A TR in ZA ( 1614.06%) B − FTSE/JSE All Share Index TR in ZA ( 1293.12%) f you are having a conversation about investments it will not be long before the phrase “To get a higher return you need to take on higher risk,” comes up. Even the most inept financial product salesman knows that this phrase must come into a conversation about investing. However, while it is true, it is only true up to a point.
Risk only rewards up to a certain point, and beyond that point the investor is unlikely to make any additional return despite taking on the higher risk. The Sharpe Ratio measures the extent to which an investment has been successful in converting risk to return. Investors can use this ratio when comparing different investments.
The process of portfolio optimisation is about finding the right balance between risk and expected return. Here fund managers will look at figures such as correlations between securities and/or asset classes to try squeeze out as high a return as possible for the given risk budget. A typical product provider will have profiled their funds according to risk levels, often allocating a conservative fund a rating of 1, and an aggressive fund a rating of 5. The reality for most investors is that they often do not need to look beyond a fund with a 3 or 4 rating on such a scale, because of the fact that risk is not always rewarded.
For investors looking for growth over the medium to long term, a well-managed balanced fund or two will often suffice. Here our preference is for industry stalwarts such as the Allan Gray Balanced, Foord Balanced and the Coronation Balanced Plus which all have credible longterm track records. For cost-sensitive investors, Satrix and Prudential’s Balanced funds warrant a closer look as well.
Coronation Balanced Plus has managed to outperform the JSE Alsi since its launch in 1996, despite having a lower risk profile. The performance graph shows that the fund has consistently delivered market-beating returns. May ’07 May ’09 May ’ 11 May ’ 13
SOURCE: Profile Media Fund Express