Choose a guided platform to minimise investment risk
04 June 2014 | Investments | General | Nico Coetzee, PPS Investments
There are currently over 1,000 unit trusts from over 40 different managers on offer in South Africa, each of which fits into one of 35 official investment categories. Confronted with such a profusion of choice, where do you even begin when looking to invest?
One alternative is to invest via a guided investment platform, which offers a reasonable range of quality investment options. Whereas open-architecture platforms try to give access to every available unit trust, guided platforms deliberately limit the number of unit trusts made available and only allow certain asset managers exposure on the platform.
A guided platform therefore offers three distinct advantages. Firstly, it ensures that you won’t be overwhelmed by choice. (As a selection of only 10 unit trusts attracted 80% of South African retail investments for the first quarter of 2014, the abundance of choice on offer is unutilised by the majority of investors in the first place.) Secondly, the asset managers included on guided platforms are usually willing to negotiate on fees, as their unit trusts have a better chance of being included in investors’ portfolios. Finally – and most importantly – a guided platform minimises your risk of making inappropriate investment decisions.
Open-architecture platforms are likely to feature a preponderance of volatile sector-specific unit trusts, and may even include asset managers with poor track records. Guided platforms, however, will eliminate unit trusts that are too finely mandated or feature unusually high inherent risks in their strategies. In addition, guided platforms place emphasis on asset allocation unit trusts such as balanced funds, which offer exposure to a number of different asset classes. Having been presented with a suitable unit trust shortlist, you can therefore also choose to leave important asset allocation decisions to your selected asset managers.
If you would like professional input on your asset manager selections as well as your asset allocation calls, you could consider a guided platform that features a multi-managed unit trust range, such as the PPS Investments platform. After having decided on appropriate asset allocation strategies, a multi-manager identifies optimal asset manager combinations to execute these strategies effectively. This further moderates investment risk, as your investment is diversified more broadly.
So if too many choices prove to be too much of a good thing, a guided platform may be a suitable consideration for you and your financial intermediary. These platforms simplify investment choice and assist in making it easier to construct appropriate investment portfolios.
