Finweek English Edition - - INVESTMENT -

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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

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