Diversity in equity allocation rampant among investment professionals – AMM

Don’t know whether to buy or sell domestic equities? Should you be beefing them up to exploit value opportunities or making a smart exit because the JSE has been in ‘expensive’ territory for months?

Insight can be gained by looking into the currently conflicted views of investment professionals according to Absa Multi Management (AMM), a ‘manager of asset managers’ that 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 is 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.

“The professionals all have the same access to the same data but often draw radically different conclusions.

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

“If weightings among the professionals fluctuate like this it’s no wonder many private investors don’t know which way to jump.”

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

The Allshare 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 some 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 retail investors select an appropriate fund manager. But generally, the current situation highlights the value of strong asset allocation skills – an investment manager capable of getting the right mix of equities, bonds, cash and property.

“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.”