BRANTAM FUNDS.
It has been requested that I offer some additional info on the Brantam
funds from time to time, with an explanation of the where we see the funds
positioned, what the thinking is behind them etc. I don’t want to be seen
as "spamming" (a lovely word used in the Internet circles when one uses a
site to tout for business), but rather as an information outlet to keep
existing clients posted. I trust that you will find it useful.
This initial issue will deal with the "how" and the "why" we have
structured our funds as we have.
WHY A "WRAP" FUND ?
A very pertinent question. The word "wrap" has been latched on to by some
of the more prominent Saturday journalists, and turned into something ugly,
so let’s clarify that issue up front:
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Our definition of a Wrap fund is nothing more than what you, as an individual
investor, tries to do – you go into the market, select the funds / endowments
etc. which you feel will offer you growth, and split your investment up into
that structure. We do the same thing – we assess which unit trust funds we
want to use to create a portfolio that reflects a specific risk profile, and
"wrap" them up into a portfolio which we give a name. Nothing more, nothing
less !
-
Despite past comments, there are NO
additional fees charged for this service. In fact, when you, as an
individual, buy unit trusts on the open market, you could pay up
to 6% + VAT for that privilege. Through our portfolio’s you get
the same thing at a maximum of 3 % + VAT, and this figure slides
down according to the size of the investment. A R1.0 million
investment will only attract 1.50 % ! There is a slightly higher
annual management fee charged (0,5% more), however, for that you
obtain a wealth of research and administration (and Updates !) –
something an individual cannot do on his own.
WHY A STRUCTURED PORTFOLIO INSTEAD OF AN INDIVIDUAL PORTFOLIO PER INVESTOR ?
This has caused much debate in the industry, and as we currently stand,
many of the advisory groups out there do still create an individually
managed portfolio for each client. There are pros and cons to both systems,
however, our theory is that...
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If you, your brother and your cousin are all low risk investors,
why have a different portfolio for each one ?
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Individual portfolio’s work well if you have a limited client base. However,
once you have 100+ clients, there are not enough hours in the day to revisit
each one on a regular basis, thus you run the risk of missing opportunities;
-
If you need to restructure portfolio’s to move out of (e.g.) Gilts, you
will have to go and check EVERY single client’s portfolio to see what
exposure they have. However, by having only 5 or 6 managed portfolio’s,
you can review these on a consistent basis, knowing that your clients are
ALL being looked after on a regular basis;
-
Based on the above points, admin costs
MUST escalate when managing on an individual basis. This restricts
one to the number of clients you can administer to, and also
dictates that one has to only look after "high net worth"
individuals. At an admin fee of only 0,5% pa, it is impossible to
viably invest under R 1,0 million.
The reverse is true with Wrap Funds – like a medical aid, they subsidise each
other allowing us to accept smaller investments and still remain profitable
and focussed;
WHY UNIT TRUSTS AND NOT DIRECT SHARES ?
Apart from the fact that the act does not allow one to collective buy and
wrap up shares (at this stage), it is also impractical for the following
reasons:-
-
The first thing that we have to concern ourselves with is Asset
Allocation. This is a critical area to deal in, and again, we believe one
of our biggest strengths. When designing a portfolio, investors tend to head
towards the JSE. The draw back to this is that, when the markets are looking
rough on the equity front, it becomes very restrictive, and they do not always
have the facility to move to cash or gilt. We, on the other hand, have access
to EVERY asset class available, and can move within 48 hours.
-
Liquidity: This may not sound that important at the outset, however, we need
to be in a position where we can act quickly should the markets appear volatile.
Unfortunately, there are not that many arena’s that allow this – imagine being
stuck in a falling stock market without the facility to sell quickly (there are
no buyers for a dropping share!). Same applies to products like 5 year
endowments etc., which impose penalties if you mature early.
However, via the unit trust arena, we have a 100% guarantee that, irrespective
of the market conditions, we will always have a guaranteed "buy back". This
proved itself in the ’98 crash where, whilst all the equity holders were stuck
in a market that dropped 42 %, we were able to sell and move to cash, and then
buy back in at the bottom;
-
Income: Dealing largely in the retirement arena, we need access to a vehicle
from which we can efficiently draw monthly incomes to pay our client base.
Again, not always that easy when dealing directly in equities etc as once
again, you have to find a buyer before you can sell your stock.
Unit trust funds, on the other hand, allow us to redeem units on a regular
basis, in virtually any format that we request.
-
CGT: New animal on the block which is causing stress. How best to manage
this ? This one area where we can actively play a valuable role – although
true wrap funds do potentially attract more CGT than a direct unit trust,
through our administration system, we are able to set up a "cash" account
through which we can monitor fees and income draws (as indicated under the
asset allocation earlier on). As CGT is not payable on interest earned from
a cash investment, this does not trigger a CGT event, thus limits the amount
of tax payable. This cash account constitutes ± 10% of the portfolio;
-
Research: Key area to any investment structure. Research is (a) expensive
and (b) very time consuming. This is potentially where we need to beat the
opposition. By using some of the largest investment houses in the country,
we are granted access to their research. Our analyst’s (of which we have two)
thus need to limit their research to finding the house or fund manager that
meets our requirements, and do not have to spend unlimited hours on trying to
research individually listed companies;
-
Risk: Obviously a key issue in any portfolio. When buying into the
stock market, you are selecting individual shares thus backing one horse at
a time. Via a unit trust portfolio, you are relying on that fund manager to
perform the task, and when you place multiple unit trusts into a portfolio,
you are spreading that risk even further. If Anglo American crashes for some
obscure reason, where it could represent 30% of a share portfolio, it will
never represent more than 5 – 10% of a wrap fund;
-
Lastly, administration: Obtaining all of the above is one thing, but how do we
effectively manage all of that ?
Having been involved in this arena for 15 years now, we have sifted through
all the systems available, and settled on M3 Capital as the optimum administrator. Through their subsidiary
company, Automated Outsourcing Services (AOS), we have access to
one of the most powerful and user friendly admin platforms
available. Through this system, we are always ensured that all our
portfolios are rebalanced on a regular basis allowing them to
maintain the risk profile which they have been designed for.
Using this logic, we have created 6 local portfolio’s as
listed below, and 3 offshore portfolio’s. This have been tried and
tested over the years, and we are supremely confident that we are on
the right track and that we are delivering a superior service to our
clients. This does not mean that we are perfect, nor that the funds
will always outperform everyone else out there. We are only human,
and will make the wrong calls from time to time. However, on average
we will consistently be upper quartile (and have been).
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