‘Tortoise investors’ making steady gains – STANLIB

In the quick-fire, highly volatile markets of recent months some of the investors who have been slowest to react have been best rewarded. Many of their rapid-reaction counterparts are not doing nearly so well.

The irony has been pointed out by STANLIB, the country’s most successful asset manager and a unit trust company that consistently advises a strategic rather than tactical approach to investment.

“Some hares have been burned,” says Paul Hansen (pictured), STANLIB’s director of retail investing. “In contrast, some tortoise investors have made steady gains. The long-haul mindset has a lot to be said for it in uncertain times.”

Stock-pickers whose JSE selections go awry can be extremely vulnerable in a market where some shares have this year shed up to 60% of their value.

Resource counters were recently hit. In early September, a counter like Anglo American was 43% down on its highs earlier in the year. Prior to the resources retreat, investors who mistimed ‘plays’ on financial and industrials came a cropper.

Hansen contrasts these reverses with recent experience in bonds and listed property.

Historically, a balanced to slightly conservative portfolio had a 15% bond allocation. For the last three years, the bond market was in the doldrums. In a changing investment landscape, the ‘new wisdom’ suggested that much lower allocations – perhaps down to 5% – were appropriate.

Some conservative investors fretted about moving out of bonds as they might not be able to recover old positions in view of limited new supply. Even so, the trend to much lower bond weightings gathered pace.

“Conservatives who maintained traditional weightings in the 12-15% band are smiling now,” observes Hansen. “The bond market has firmed since mid-year while delivering a yield of a little over 9%. A firmer market and a steady return may sound unspectacular, but it beats a loss of 30% or more in some equity sectors.”

Traditionally, the listed property sector was also regarded as unexciting.

Until five years ago, there were few listed property companies. Only a limited number of unit trusts specialised in the sector.

The traditional small investor in this category looked to long-term value appreciation to provide some protection against inflation as even a sleepy equity sector can achieve reassuring growth over time. But the prospect of dramatic capital growth was never the prime motivation for position-taking.

The attraction was steady income driven by rental streams at quality retail, office and industrial properties.

In recent years, the listed property category has expanded. A new generation of listed property supporters joined the traditionalists as expansion coincided with significant gains by these counters. Some of this support turned out to be ‘hot money’ looking for quick gains.

“The old-style listed property investor has not done badly at all,” says Hansen. “But some of those who got their timing wrong while flitting in and out have not fared at all well.

“If you bought into listed property in September 2006 you were 15% up in terms of capital growth by early September 2008 net of distributions. If you bought in September 2007 during one of the recurring property up-runs you are still down about 12%.”

It’s an example of time in the market paying off. In contrast, timing the market can be a matter of chance, says STANLIB.

“Volatility might be exciting,” notes Hansen, “but boring is better when boring delivers steady gains across a balanced portfolio.”