Get asset mix right – Absa’s savings month tip

Let the investment professionals reach for the tranquilisers. The average unit trust saver-investor should reach for a good asset allocation fund instead; especially one with proven value credentials.

At the start of National Savings Month that’s the advice from Craig Pheiffer: General Manager: Investments, Absa Asset Management Private Clients. He’s part of an Absa Investments team that has spent months watching local market indices shoot up and down without apparent direction.

“In an environment as changeable as this the average investor has little chance of selecting the optimum asset mix,” says Pheiffer.

“Yet appropriate asset allocation is vital as research confirms that the bulk of a portfolio’s returns are driven over time by proper asset allocation.”

He says the challenge for the layman is compounded by the glut of market data and sometimes contradictory economic indicator releases. On the run-in to Savings Month the news on this front has been decidedly mixed.

Pheiffer adds: “Uncertainty and volatility make it vital to diversify one’s portfolio across asset classes. If you lack the time, expertise and resources to apply your own diversification strategy, the short-cut to peace of mind is commitment to a good asset allocation fund known to deliver acceptable long-term returns.

“To really calm the nerves, it’s best to go for value oriented asset managers known for an essentially conservative approach.”

To underline the need for asset allocation skill, Pheiffer points to the variances in asset class performance in the first half of the year.

The FTSE/JSE All Share index lost 4.1% on a total return basis for the first six months of the year. Resource stocks retreated 10% in the same period while the JSE’s Top 40 index lost 5.9% over the first two quarters. Midway through the year, Industrials were down 1.3%, though Financials were up 1.3%.

Mid-capitalisation stocks were up 8.0% for the half-year, but small-caps were just 1.7% higher.

Some domestic non-equity asset classes did better. Listed property ended the first half 10.6% higher while the All Bond index achieved a 5.6% return.

Listed prime-linked perpetual preference shares managed a total half-year return of 7.7%. The cash return was 3.6%.

“Most unit trust investors simply want long-term inflation-beating returns,” says Pheiffer. “A reliable performer from the asset allocation category will usually do that for you without undue risk.

“Currently, the right mix of equities will keep you ahead of inflation, so will some non-equity asset classes. But managing the variables every day, week and month is hugely challenging – all the more reason for the public to opt for a proven asset allocation unit trust that does this for you.”