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    Seed Weekly - Finding the Perfect Investment

    By and large my job as a Wealth Manager is quite an easy one. All that I need to do is, predict the future by saying which markets are going to perform well and which markets are going to perform badly, I need to be able to predict when clients are going to die to ascertain whether the money they are “wasting” on Life Cover is really really necessary and I need to find solutions two years before retirement for clients who have failed to apply any planning or thought to their retirement savings for the last 35 years. Apart from the minor problems mentioned above life as a Wealth Manager is pretty easy.

    Most clients are pretty reasonable, their only requirement is an investment which beats inflation comfortably, has no downside risk, is immediately accessible and where you pay no fees!!!!!! Unfortunately the old adages of risk and reward, and fear and greed are now truer than ever before. In his book “The Behaviour Gap” by Carl Richards, the author tells us that “Planning for your financial future is about making trade-offs. It’s largely a question of dealing with the constant tension between living for today and saving for some future event.”

    In their search for the “perfect investment” clients often make stupid decisions. They will often chase last year’s best performer whilst logic should tell us that their chances of being next year’s best performer are quite low. Paralysis by analysis is also a common problem, we have so much information at our disposal that we fail to make any decisions and slowly see inflation eroding our capital base. The most common mistake, however, is clients who get so overwhelmed by the complexity of a financial plan that no plan ever gets implemented.

    Financial planning should not be a generic “one size fits all” approach. When drawing up your financial plan you need to look at your own circumstances. Look at your budget, how much can you save, how much will you need at retirement, when do you plan to retire and what rate of return do you need to achieve in order to attain your goals? Once you have answered these questions and you are tracking the performance of your investments against your predetermined goals, you will be less inclined to chase after the next “perfect investment”

    The warnings / disclaimers on investment adverts “past investment performances may not be an indication of future performance” are unfortunately as ineffective to the “perfect investment chaser” as the health warnings on cigarettes packs are to the “chain smoker”. Whilst we are always told that “past performance is no guarantee of future performance”, most clients (and unfortunately some advisors) will use past performance as the major determinate as to where their future investments will go. Investing based on past performance is like driving whilst only looking in the rear view mirror, both will cause a lot of accidents.

    The problem with financial planning is that it is not something that can be done now, and then forgotten about. Financial planning is a constant process of goal setting, review and adjustment. Without a plan, consistent reviews and frequent adjustments, your chances of “succeeding financially” are slim.

    So, unless you win the lottery or marry very well, my suggestion is that you start as early as possible to determine your financial goals, set up a financial plan, implement it, review it and adjust it on a constant basis. And whilst your Wealth Manager can’t see into the future, having one help you set up, implement, and review this plan will definitely enhance your chances of success.

    Kind regards,

    Barry Hugo

    Click here to download printable PDF document

    Tel +27 21 914 4966
    Fax +27 21 914 4912
    Email info@seedinvestments.co.za

    Seed is hiring: Visit the Seed Analytics LinkedIn profile to view vacancies.


    Permalink2016-02-24, 21:07:25, by Mike Email , Leave a comment

    Seed Weekly - Fund Flows

    Saving and investment is a topical issue, both from a regulation and a personal goal perspective. Regulators are trying to put measures in place encourage individuals to save more as South Africa’s saving rates have been branded poor by global standards. Individuals are more cognisant of the importance of saving and investment, not to be ready for a rainy day, but also to achieve personal goals and attaining financial freedom. Collective Investment Schemes (CIS) are centre to this as they provide an important vehicle for investors to save.

    We explore South Africa’s fiercely competitive CIS industry, focusing on the trend in fund flows. It is logical to assume that good performance is rewarded by inflows although financial economics argues that performance may not necessarily be persistent. In fact, it is well known that past performance does not guarantee future performance.

    Historically, industry performance awards have been dominated by the largest players in the industry. However, recent trends suggest a shifting landscape in the industry with boutique managers receiving a lot more recognition. Investors tend to favour the “tried and tested” managers, which supports the managers that have been in the industry for longer. However, consistent good performance does not go unnoticed.

    Recent trends

    Chart 1: Growth in Local CIS Industry

    The local Collective Investment Schemes (CIS) industry attracted inflows amounting to R109 billion in 2015 according to industry statistics released by the Association for Savings and Investment South Africa (ASISA). Multi-Asset investment portfolios, due to their greater diversification are unquestionably the preferred investment vehicle. Of the R1.9 trillion invested with the CIS industry, 51% is invested in Multi-Asset portfolios. Investors committed a total of R58 billion during the course of 2015, with the Income subcategory proving the most popular, followed by Low Equity category as investors exercised risk averseness.

    Remarkably, on a global scale, single asset portfolios are more popular. $36 trillion is invested in CIS portfolios and of this, Equity portfolios (including property) form the bulk (42%), followed by Bond and then Multi-Asset portfolios (22% and 14% respectively). Locally registered foreign portfolios held assets under management of R364 billion at the end of December 2015, compared to R283 billion at the end of December 2014 and recorded net inflows of R2.4 billion over the 12 months to the end of 2015.

    Large Managers

    Chart 2: South Africa’s largest Managers (R’ million)

    Assessing the net flows data from Morningstar paints an interesting picture for the largest Managers. The managers’ experienced net outflows, save for Nedgroup Investments that gained R15 billion in assets. Nedgroup Investments was a bigger winner at the recent Raging Bull awards, winning 5 category awards and the coveted, Management Company of the year. Their strategy to allocate management of specific mandates to different manages including boutiques seems to be working well. Boutique managers also won handsomely at the awards and as can be seen in the next section, good performing funds like the Rezco Value Trend Fund, are getting rewarded with net inflows for their good performance.

    Popular Funds

    Chart 3: Estimated net flows as at 31 December 2015

    Ranking the local CIS funds by 2015 net flows, gives results consistent with the notion that Multi-Asset portfolios are the preferred investment vehicle. The Rezco Value Trend Fund and Nedgroup Investment Opportunity Fund managed by Rezco and Abax respectively provide testimony to the growing popularity of funds managed by boutiques. The outperformance by boutique managers relative to their more accomplished counterparts is one of the reasons why they are gaining greater recognition.

    As a reminder, it is important for one to have specific savings and investment goals. Matching return objectives, risk appetite and tolerance will help in determining which investments are appropriate for you. Multi-managers like Seed, offer solutions diversifying risk across different managers/funds/strategies to help you achieve your goals. Speak to your financial adviser to get more insight and work on attaining your investment targets.

    Kind regards,

    Tawanda Mushore

    Click here to download PDF document

    Tel +27 21 914 4966
    Fax +27 21 914 4912
    Email info@seedinvestments.co.za

    Seed is hiring: Visit the Seed Analytics LinkedIn profile to view vacancies.


    Permalink2016-02-16, 13:15:25, by Mike Email , Leave a comment