MAN, ARE WE
HOT OR WHAT?
That sounds a little bit like bragging, does it not ? So what – the Brantam
team have, once again, delivered some stunning results, so let them brag.
Question is – how does one go about getting these results ? How much is flook
and how much is skill ?
We would be the first to admit that luck does play a part, but as one great
sportsman said: “the harder we practice, the luckier we get”, so read on
MacDuff.
Annual performance to 30 October 2001:
|
Portfolio
|
Risk level
|
1 Year
|
3 Years
|
|
Classic Port
|
Low
|
24.4 %
|
17.8 %
|
|
Cabernet
|
Low to medium
|
20.7 %
|
15.3 %
|
|
Chardonnay
|
Medium
|
15.5 %
|
9.8 %
|
|
Shiraz
|
Medium to high
|
19.2 %
|
9.1 %
|
|
Champagne
|
High
|
12.1 %
|
9.2 %
|
|
Claret
|
International
|
23.0 %
|
n/a
|
How to manage money
Although the average “man in the street” has evolved significantly over
the past 5 years with the assistance of talk show hosts etc., when it
comes to making basic investment decisions, many investors are still a
bit bewildered by all the jargon used by the media - words such as
trend investing; stock picking; asset allocation; index tracking etc.
tend to leave one stone cold ! So just how should one go about creating
a portfolio?
Basically, there is no right or wrong way, as most investment managers
have their own style of putting together a portfolio. However, there are
certain areas that have to be considered, otherwise there could be undue
risk in the portfolio.
In Brantam’s case, we place most of the emphasis on asset allocation, in
other words, what percentage of our funds should be invested in shares,
cash, property and bonds. In addition, we also make the call on whether
that asset class should in SA or Europe etc. Obviously, these decisions
are driven by the risk profile of each of our portfolios (see links to
the various portfolio’s in the side bar) – for example, a low risk
portfolio will never be invested totally in shares and vice-a-versa. By
the same token, it also doesn’t make sense to invest in shares (equities)
when we know that the share market (JSE) offers limited upside potential,
just for the sake of being invested.
Can asset allocation make that much difference to a portfolio – I mean
surely an investment offshore will make money no matter where it is
because of the weak rand exchange rate ? You had better believe it !
Take the following example: -
Assuming you had R 300 000 to invest a year ago and you decided to put
R 100 000 in the America stock market, R 100 000 in the London market
and R 100 000 in the German market, the value of your investment a year
later would be a grand R 296 750, and that AFTER taking exchange fluctuations
into account !
However, had you put the R 100 000 in a bank account in America, R 100 000
in London and again R 100 000 in Germany, the value of your investment
a year later would be R 392 270, a return of 30% for the year.
OK, so that makes sense – where to next ? Once we have decided on our
asset mix, we need to determine what percentage should be local and
what we want in terms of offshore exposure. We have all heard the “mantra”
that you have to have all your assets offshore (or is that eggs in one
basket ?), but the previous example clearly shows that even if you had
invested everything offshore, you would have shown a zero return for
the year. Clearly, there are times to be invested overseas and there
are times when the local markets offer better value. You need to be
flexible enough to choose between the two. Right now, for example, the
foreign share markets do not look particularly attractive, whilst our
local market is relatively inexpensive.
The last step in the process is to select the fund manager that we believe
is the best in the particular asset class that we have chosen.
For example, if our research is telling us that local mid cap shares
(here we go with the jargon again – “mid cap” shares are merely companies
that have a capital base of around the R 1,0 billion mark, versus “large
Caps” like the Anglos of this world) are likely to perform in the near
future, we certainly won’t go and buy a top 40 index tracking fund, as it
tracks those large cap shares that we are talking about. Here our analyst
will dissect all those funds that dabble in the mid cap shares, and select
the one with the most future potential.
It is also important not to become emotionally attached to a particular
fund just because it may have had good returns in the past, or because
we may have developed a liking for the fund manager (he may be a great
golfer !). One of the commonest mistakes we see investors making is to
read the rankings in the Saturday press, and then making an “informed”
decision to invest in the current top performers. Dangerous stuff ! A
clear example of this would the Resource Sector. They have had a phenomenal
run over the last 18 months – but is this likely to continue for another 18
months ? Probably not. Therefore, once we have made our profit, we would be
happy to get out and look for another manager in a different sector who we
believe is just starting to show some return.
So this all sounds wonderful in theory, but does it actually work in practice?
Having been bashing around these markets
for the better part of 15 years, and having a few “grey beards” in
the organisation (plus a team that has remained largely unchanged
throughout this period), has allowed us (Brantam) to get our whole
investment process down to a relative well structured art, and
although past performance is NOT an indication of future
performance, we do believe that what you saw in the introduction is
a clear indication that we are doing something right.
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