Un­con­ven­tional tac­tics

Finweek English Edition - - INVESTMENT -

It has been said re­peat­edly that the per­for­mance of the lo­cal econ­omy does not equate the per­for­mance of the JSE. The mar­ket, how­ever, is mul­tidi­men­sional and the econ­omy will even­tu­ally have a larger-thanex­pected im­pact on a sub­stan­tial part of the JSE. The multi­na­tional dar­lings, even though hedged against the lo­cal econ­omy, have be­come un­com­fort­ably priced. It is hard to f ind value on the lo­cal mar­ket, es­pe­cially when your in­vest­ment uni­verse is, for all prac­ti­cal pur­poses, con­strained to 20-odd over­traded large caps. This is es­pe­cially true for in­sti­tu­tional in­vestors who suf­fer un­der the bur­den of the bench­mark and/or whose de­ci­sion­mak­ing pro­cesses are fa­tigued by an enor­mous as­set base.

The prob­lem is ag­gra­vated by the in­dus­try’s con­ven­tion to build prod­ucts which leaves the man­ager with very lit­tle tac­ti­cal dis­cre­tion and ne­ces­si­tates the use of a f inan­cial ad­viser on which the tac­ti­cal bur­den then falls. The f inan­cial ad­viser, how­ever, does nor­mally not have the nec­es­sary fore­sight with re­gard to tac­ti­cal mat­ters, or when hav­ing the fore­sight, does not have the ad­min­is­tra­tive ca­pa­bil­ity or the courage to act upon his fore­sight.

Times like these call for un­con­ven­tional tac­tics, so I would ask the aca­demics and in­dus­try rep­re­sen­ta­tives to for­give me as I lay a few tac­tics be­fore you:

Avoid in­dex funds that track the lo­cal mar­ket.

Avoid their com­pe­ti­tion: the mega as­set man­agers. They might even mange to out­per­form their bench­marks, but the point is to get away from the bench­mark. A yard­stick can very eas­ily be­come a stick that can deliver a hid­ing.

If unit trusts are your cho­sen in­vest­ment ve­hi­cle, opt for a flex­i­ble man­date rather than 100% eq­uity. Opt for a man­ager who utilises his for­eign in­vest­ment al­lowance to its full ex­tent.

Al­lo­cate an ob­scene amount of your wealth to off­shore in­vest­ments.

Con­sider us­ing al­ter­na­tive as­sets like pri­vate eq­uity or hedge funds.

Con­sider us­ing a seg­re­gated port­fo­lio, both for off­shore and lo­cal in­vest­ments: un­der­weight lo­cal bonds, lo­cal listed property, lo­cal re­tail­ers.

Move into the mid- and even small-cap sec­tor.

Buy large multi­na­tion­als listed in the

50 000

45 000

40 000

35 000

Aug 2013 UK, US and in Europe.

Buy a broad in­dex that has ex­po­sure to the US econ­omy. A small-cap in­dex might cap­ture the per­for­mance of the US econ­omy even bet­ter.

Never un­der­es­ti­mate the op­por­tu­nity value of hav­ing some cash on hand.

Buy a growth stock that is chang­ing the world and ex­cites you. Think Google, MasterCard or Ama­zon. You’ll find a few on the Nas­daq.

Buy a cheaply priced Ger­man in­dus­trial stock, think Volk­swa­gen and Siemens. Ger­man en­gi­neer­ing re­ally is what it says it is.

In­dus­try con­ven­tions have in­ad­ver­tently en­trenched in­vestors in an end-prod­uct which looks very much the same through­out the in­dus­try and which trans­forms at a much slower rate than the in­vest­ment land­scape. Time to break the con­ven­tion, time to get un­con­ven­tional.

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