Diverse views on equity creates new challenges for advisers – AMM

Confusion around the future direction of domestic equities looks certain to compound the challenges faced by retail investors as they seek guidance on whether to up- or down-weight this crucial asset class in their portfolios.

Market uncertainty and contradictory signals faced by advisers and investors have been highlighted by recent investigations at Absa Multi Management (AMM), a leading ‘manager of asset managers’.

AMM constantly scrutinises performance, philosophy and behaviour across all major investment houses and many of the smart stock-picking boutiques that are often under-researched by their financial service peers.

“There’s very little consensus on domestic equity weightings in the asset management industry,” says Miranda van Rensburg, a leading AMM analyst with the job of tracking fund manager behaviour, asset allocation trends and shifts in investment style.

“At some asset management firms we found equity allocations in balanced funds as low as 50% while some of their peers had weightings of 75% yet the risk profiles were supposedly much the same.

“If equity weightings among the professionals fluctuate like this it’s no wonder many private investors don’t know which way to jump. They can therefore be expected to consult their professional advisers as performance by this asset class is often crucial to overall portfolio performance. This is perhaps also the reason for the increased interest in balanced funds, where the decision of which asset classes to invest in is handed over to the asset manager.”

AMM ascribes the divergence to some nervousness about relatively high JSE valuations and growing market volatility.

The JSE Allshare Index is basically back to May 2008 highs suggesting the market is expensive based on historic earnings and some profit-taking might be sensible.

However, some listed companies in various sectors still present buying opportunities even though the market as a whole is expensive.

“It’s difficult in these scenarios to suggest guidelines that might help advisers and investors select an appropriate fund manager. But the current situation highlights the value of strong asset allocation skills – an asset manager capable of getting the right mix of equities, bonds, cash and property given the investment mandate and objective of their portfolio.

“On top of that, stock-picking ability off the back of strong fundamental research can work wonders as it helps soften any dip while adding extra upside when the market favours the manager.”