Think big for long term investment gains

Investors are continually told they should think long term, but that’s only half the story. For improved returns they should also think BIG.

The investment tip comes from Chris Botha, senior fund manager at Imara Asset Management South Africa, a firm with a reputation for securing contrarian gains.

Botha disputes the contrarian label. He says results are often secured by big-picture strategies that only look contrarian when viewed in the context of short-term market shifts.

The flagship Imara Equity Fund has achieved one-year returns of 25.7% and annualised three-year returns of 20.6%. Many core holdings were selected because big-picture thinking indicated structurally driven growth potential.

Says Botha: “The big themes for me are consumer market growth, industrialisation and urbanisation.

“As families move to the cities they need homes, cars and appliances. City planners have to invest in roads, housing, electrification and infrastructure.

“This creates a five-, 10- or 20-year underpin for some resources, construction, retail counters and services like banks. Select strong players in those categories whose managers invest in long-term growth and you improve your chance of solid returns – perhaps not every quarter, but over the long haul.”

China’s rate of urbanisation, according to a UN report, topped 50% in 2011, with no let-up in sight. In the next two decades 310 million more people are expected to migrate to new Chinese towns and cities.

The UN says by 2050 the number of urbanites will rise 75%. By mid-century, 68% of the world population will be urbanised, with most growth coming from Africa and Asia.

“Urbanisation is a huge driver,” says Botha. “So is Africa’s growing consumer spend.

“Several years ago, smart strategists in some local banks and retail groups invested in this theme. Today, these Africa-facing companies derive substantial income from these investments and share prices have risen accordingly.”

Big-picture thinking evens the playing-field for small investors, he believes.

“Share analysts spend hours examining company reports, focusing on tiny pieces of data,” he notes. “This work is necessary, but the average person is not qualified for it.

“But the average guy can follow the big issues published in well-regarded newspapers and periodicals. You are in a position to benefit if you think big and make sensible connections between macro, structural issues and companies well placed to respond.”

Another advantage enjoyed by the small investor is ‘stickability’.

Botha explains: “Internationally, some big fund managers increasingly behave like short-term traders. Yields are very low in Europe and the US. Investment professionals are under pressure to increase yield and are often measured quarterly.

“The small guy who makes sensible allocations based on strategic themes is not under this pressure. He can sit out the trading shifts. Returns might be hit when international money floods out of our market. But that creates a buying opportunity. Rewards mount when the big boys return.

“Small investors commit thousands, not billions. But in relative terms they can still score big … if they think big.”