Category Investments

Ask about several timeframes investor tip from STANLIB

14 November 2006 Clear Distinction

CONSUMERS should watch the timeframes quoted by financial product marketers and ask about performance over several periods, not just one, given the phenomenal returns of the last three years return on the JSE.

The investment tip comes from STANLIB, a unit trust company eager to see responsible marketing following recent volatility on local equity markets and a correction to the long-running gains of the JSE.

The period of the strong equity run - a little over three years - prompts the consumer alert from STANLIB, the countrys largest unit trust company.

Patrick Mamathuba, STANLIB's chief investment officer, pointed out: "That neat three-year fit creates a potential pitfall.

"Three years is a benchmark period for investments. It is often quoted as a conservative period after which it is appropriate to assess an investment products wealth-generating potential in the medium to longer term.

"But in our case, the last three years have been a period of exceptional equity gains, running to more than 40% a year in some cases. By quoting only a three-year track record, it is possible to create an impression of great strategic growth even across a conservative timeframe.

Timeframe alerts usually focus on the short-sightedness of looking simply at investment returns over the most recent quarter.

Mamathuba said: "By now, the consumer is probably aware of the danger of looking at simply the last three months and may think that the last three years is the prudent thing to do. It usually is but this time around further yardsticks are needed."

STANLIB advises consumers to consider several periods, including the last year, three years and five years while bearing in mind the exceptional JSE gains since 2003.

Mamathuba added: "STANLIB works with thousands of investment advisers and we are confident the vast majority of investment products are marketed in a responsible and professional manner. Even so, it is important for a high-profile unit trust company such as STANLIB to draw attention to the issue as it involves equity returns.

"Equity markets always contain an element of risk. Historically, equities are engines of long-term wealth creation and deserve a place in any portfolio with a mandate of achieving inflation-beating returns over several years. But the risk of short-term loss is always present.  Furthermore, the probability of the next three years equity returns matching the next three is quite remote."

* Mamathuba is Chief Investment Officer of STANLIB, South Africa's largest unit trust company.

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