NEWS AND INSIGHTS

Feature Article

Has your Portfolio been Designed – or Cobbled together?

As an advisor, you are faced with all kinds of client portfolios – typically portfolios where funds have been selected haphazardly over time due to their good past performance and the aim of the total portfolio has been lost in translation.  In this article we would like show advisors how to recognise portfolios that have been well-designed with funds playing clearly-defined roles and blending beautifully together.  In particular, after reading this article, you should be able to articulate:

  • Why the proposed investment portfolio has been designed – and not cobbled together.
  • The role and characteristics of each fund in the investment portfolio.
  • Why the diversified portfolio should perform well through different market environments.

Introduction

At Analytics all sorts of portfolios cross our desks.  Portfolios that have been well-designed with funds playing clearly-defined roles and blending beautifully together…and then also portfolios where funds have been selected haphazardly over time due to their good past performance and the aim of the total portfolio has been lost in translation.

There is no excuse for not designing portfolios scientifically anymore.  After all, the blueprint for designing portfolios was developed ages ago when Harry Markowitz wrote his seminal paper entitled “Portfolio Selection” in the Journal of Finance March 1952 edition.  His article showed that diversifying across uncorrelated assets was a way to invest optimally while reducing risk.  Consider the following quote by the Father of Modern Portfolio Theory, Harry Markowitz:

“A good portfolio is more than a long list of good stocks and bonds.  It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies.”

At Analytics we design portfolios with the above quote in mind – ensuring that investment portfolios are constructed that include uncorrelated funds – an optimal combination of conservative satellite, core and aggressive satellite funds which should provide a consistent return profile in different market environments.

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Daniel Schoeman
Daniel Schoeman is currently CIO of the Analytics multi-manager funds of funds. He has more than 19 years investment and portfolio management experience, and has previously worked at three of the largest multi-managers in South Africa, first at Investment Solutions, then joined Momentum MultiManagers which later merged with MCubed to form Advantage Asset Managers.‍His main responsibilities include economic research, tactical asset allocation, investment manager research, portfolio construction, monitoring and risk management, system development and innovative investment research.‍He is also a member of Investment Committees of some of the largest advisor networks in South Africa, providing investment consulting services to these groups on an on-going basis.

Multi-Manager SummarIES

Our Multi-Manager Summaries provide Market, Asset Allocation and underlying Fund Managers insights.

Summary of market returns:

12 months ending June 2020:

  • In ZAR the best returns came from Offshore Bonds (28.42%), and Global Equities (26.47%). SA Property fell by (-39.98%) over the last 12 months while the ALSI fell by (-3.30%).
  • The primary Economic Sectors within South Africa delivered the following returns: SA Resources Index (11.69%) the Financials Index(-36.93%) and the Industrials Index (7.18%).
  • The South African equity market performance was negative across all market caps, with Large caps falling by (-0.55%), and the Mid-cap andSmall-cap sectors returning (-17.60%) and (-22.93%) respectively.
  • The positive bond market return in the last 12 months was driven primarily by the shorter term 3-7 and 1-3 year dated instruments which returned (11.22%) and (10.56%) respectively. Corporate bonds continue to outperform Government bonds over the last year.
  • The MSCI SA Growth Index continues to outperform the Value Index by a significant margin, returning (22.55%) over the last 12 months, while the MSCISA Value Index contracted by (-33.53%).
  • Separating the FTSE/JSE All Share Index into its Industry Sectors exhibits Technology as the top performing sector, growing by (36.54%). BasicMaterials grew by (12.53%) and Consumer Services contracted by a significant(-26.06%).
  • Equity stock returns were mixed, with Prosus returning (52.62%)while RMB Holdings fell by (-98.01%) as a result of the unbundling in June.
  • The MSCI Emerging Market Index grew by (19.46%) in ZAR, outperforming the
    (-3.30%) drop of the ALSI. The S&P 500 Index returned (32.46%) in ZAR over the last 12 months.
  • In ZAR terms the Commodity market exhibited varied returns withGold growing by (25.30%), and Platinum growing by (1.120%) while Brent CrudeOil decreased by (-38.17%).
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MONTHLY NEWSLETTERS

Our Monthly Newsletters provide the latest Economic Overview and Market Commentary.

Macro economic indicators published during July confirmed what investment markets pointed to in the middle of March – a significant reduction in global economic output. The next question is, of course, how quickly economies will recover after the global lockdown in the second quarter, as this will have a significant impact on the profitability of companies around the world. The sustainability of the recovery in equity markets will be tested as more information about economic activity is published in the coming weeks and months.

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