Flexibility is core to good strategy
Last year was one of pleasant surprises for the domestic unit trust industry, and while it’s unlikely to be repeated this year, we’re certainly not headed for calamity. Last month, during meetings with analysts and portfolio managers across the country, a mature confidence was broadly evident, though with expectations of generally lower investment returns.
As Old Mutual’s Peter Brooke pointed out, broadly global equities remain the preferred asset class, followed by domestic equities, domestic property and South African bonds.
The US, of course, remains t he economic bright spot, even though the Fed is expected to raise interest rates in the next few months. Flexibility is very much a core strategy among top offshore portfolio managers and so is discipline. Many are saving large positions for when valuations are extreme and catalysts for change arise.
As one analyst remarked: “Our approach is not to form one view of the future, but to invest in assets robust to many scenarios.”
Allan Gray CIO Ian Liddle said as much for several domestic managers. “We continue to research the investment opportunities offered by the market rigorously, and continue to execute our investment process without being swayed by the mood swings of Mr Market.
“By constantly exercising the discipline of selecting shares [and other securities] that we calculate to offer better relative value to the available alternatives, we should hopefully be able to compound better long-term returns than those provided by the overall market, even i f market re t u r ns over al l prove disappointing,” says Liddle.
Worth remembering perhaps i s that many good companies can grow profitably without global or domestic growth, either by restructuring or creating growing new markets.
A point that really came through and emphasised by Coronation CIO Karl Leinberger has been the swing back to multi-asset funds.
He didn’t demolish the case for clients opting for building block funds in any market, but nevertheless said, “I do think that clients with the opportunity to invest in a credible multi-asset fund should take it.
“We think that an investment in our multi-asset funds makes more sense for most of our clients than an investment in our underling building blocks funds.”
He gave several reasons, but certainly profound was that highly professional investment teams are best placed to adjudge risk, think through unintended positions, and identify the best riskadjusted returns across all asset classes, sectors and capital structures.
Other interesting views expressed included the importance currently of high dividend yield funds being key to capital growth for cautious and moderate investors. One analyst noted that while dividend growth may be more sluggish these days than it was in the past, a high dividend yield often shows that a stock is unloved as investors choose to ignore it in favour of lower-paying shares elsewhere.
It’s invariably a classic indicator, said the analyst, of value and a harbinger of making future capital gains. Reinvesting your payouts in new shares could make you a fortune.
Enjoy the read.