Flex­i­bil­ity is core to good strat­egy

Finweek English Edition - - INSIDE - Leon Kok

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.

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