"IS LONG TERM INVESTING IMPORTANT?"
We all tend to make the fundamental mistake of looking at investments over the
short term, without taking the bigger picture into account. Our Classic Port
portfolio is a typical example of this – the one year return, from 1st January
to 31st December 2002, was a miserable 7%, and we have already had calls from
existing clients complaining about this, charging us with the fact that they
would have done better had they invested in the Money Market.
This is a valid point, however (and there is always a "however"), the fund
is invested in instruments which are designed to provide some upside potential
over a conventional Money Market fund, and as such, will take an element of
risk such as the Gilt market to achieve this. Let’s look at what really
happened during 2002:
AVERAGE EXPOSURE:
Cash and Gilt: 55%
International Exposure: 25%
Local Equity: 10%
Money Market: 10%
THE RAND:
2001 ended with the Rand
collapsing by 72% between June and end December (from 7.98 to a peak
of 13.73). This resulted in a handsome profit being made in 2001.
However, from Jan. 2002 to June 2002, the rand recovered again by 29
% and again between Sept and year end by another 18.6 %. We, like
everyone else, still held a small offshore exposure as a hedge, and
this obviously took away gains made in other areas.
GILTS:
Although a marginal exposure for
the bulk of 2002, we did hold Gilts, which showed yields of 11 %
plus for the year, but had a period of weakness in the first 6
months which resulted in some capital losses.
Net result was that these two factors managed to sabotage the first 6
months of the year, which dented overall performance. But here comes
the crunch – look what happened from June onwards – we actually showed
over 7% for that 6 month period alone, which means that the portfolio
could effectively have done 14% for the year had the rand held it’s head.
More importantly though is what was your average return over 2 years ?
Classic Port maintained an average of 16.1 % p.a. for the 2 year period,
which is still streets ahead of cash in the bank. The only folk who
really felt the pinch were those that invested in January 2002 – for the
rest, they are still ahead of the game.
Bottom line is that one cannot look at any investment in isolation over
a specific period, as there will always be fluctuations. However, these
do get ironed out over time as indicated above.
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