HOW LO­CAL FUND MAN­AGERS HAN­DLE TOUGH TIMES

Finweek English Edition - - FRONT PAGE - BY SCHALK LOUW Port­fo­lio Man­ager at PSG Wealth

I’m sure you will prob­a­bly agree that great un­cer­tainty seems to be the driv­ing force be­hind world mar­kets at the mo­ment. When the sun shines at its bright­est on the mar­kets, in­vestors seem blinded by the light and un­able to see ac­tual fair value, while these very in­vestors fail to see any­thing good when t he mar­kets ar e at their dark­est.

Ev­ery morn­ing, while get­ting ready for work, I switch my tele­vi­sion to one of the in­ter­na­tional fi­nan­cial chan­nels to lis­ten to the views of var­i­ous well-known in­vest­ment in­sti­tu­tions. What I find very in­ter­est­ing is the fact that their views seem to change daily – es­pe­cially these days. One morn­ing we are told that the out­look seems pos­i­tive and that we may be ap­proach­ing the end of the mar­kets’ de­cline. The next morn­ing, af­ter the re­lease of one or two sets of neg­a­tive data from China, we are made to feel that the end of the world as we know it is near. No won­der in­vestors feel like a chameleon on a box of Smar­ties. lo­cally and in­ter­na­tion­ally) low­ered from an av­er­age of 68.4% in Septem­ber 2012 to 63.3% in Septem­ber 2014. The de­crease in eq­uity ex­po­sure came mainly from lo­cal eq­ui­ties, and in part pos­si­bly due to the ex­treme weak­en­ing of the rand. Over the same pe­riod, these f ive funds also in­creased their av­er­age money mar­ket ex­po­sure from 16% to 19.5%, prov­ing that even our lo­cal in­vest­ment pro­fes­sion­als weren’t all that com­fort­able with val­u­a­tions and t he i nvest­ment play i ng f i eld i n which t hese val­u­a­tions were to be found.

These funds have main­tained their f ixed in­ter­est ex­po­sure at around 28%, while the money mar­ket was clearly used as an es­cape when­ever mar­ket un­cer­tainty be­came a ma­jor con­cern. Even War­ren Buf­fett men­tioned on sev­eral oc­ca­sions that i nvestors shouldn’t be afraid to hide in cash in­vest­ments when they feel un­cer­tain and our top f und man­agers clearly share his view.

With t he most r ecent mar­ket move­ments, these funds have started to use mar­ket weak­ness over t he past two months to lower their f ixed in­ter­est ex­po­sure, while in­creas­ing their ex­po­sure to eq­ui­ties. The process re­mains slow how­ever, as it is nowhere close to the lev­els seen three years ago.

In con­clu­sion, I will re­it­er­ate the fact that in­vestors shouldn’t be driven by emo­tions in cur­rent mar­ket con­di­tions. If we were to com­pare in­vest­ments to a cricket match, it should be seen as a f ive-day se­ries, rather than a Pro20 or even a one-day match. Learn from the in­vest­ment ex­perts and rather use these con­di­tions to sort out your weight­ings.

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