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Investment Strategy
Sunday, April 1, 2007
Watch your weight

Retail investors should watch their ‘weight’ in 2007, says Stanlib. This refers to different weightings in an investment portfolio for various asset classes such as equities, bonds, cash and property to reflect an individual’s investment objectives and risk tolerance.

According to Paul Hansen, Stanlib’s director of retail investing, some categories have enjoyed such a good run that weightings may need adjusting. Conversely, ‘equity aversion’ may have resulted in a severe underweighting of this class.
Two big ‘winners’ in the second half of 2006 were listed property and the Financial and Industrial Index. Listed property recovered after falling 26% between May and July. By January it was 52% up from its July lows (including dividends). The Financial and Industrial Index also surged ahead and by early February was up 45% on June’s low.
Advises Mr Hansen, “When strong gains are made, portfolio balance can be affected. A review may therefore be appropriate. Perhaps take a little profit and beef up the portfolio’s cash component, paying due regard to your risk profile.
“Conversely, some investors have been equity-shy for several years and had little exposure to last year’s gains. They could have missed out on capital appreciation over a relatively long period and may now be questioning their portfolios’ ability to provide for a comfortable retirement. In these cases, a more positive equity weighting may be appropriate.”
Winning strategies in 2007 should not neglect equities. Stanlib believes there is potential for a 15%-20% gain in rand terms in offshore equities, while local equities could move 14% higher by year-end. Listed property’s positive run could continue, albeit at a less frenetic pace. By the end of the year, a further 15% gain is possible.
“Offshore property also warrants attention. So the role of this asset class as a portfolio diversifier should not be ignored,” he adds.
Infrastructure-led growth is predicted as a key driver of the economy in 2007, a forecast that has already contributed to a 15% uptick in this category. “Some may feel this has been overdone,” he comments. “But those taking a long view may commit to the sector anyway as the strategic prognosis looks good.
“Resources will retain their attraction for those not averse to risk. Those seeking less volatility and greater earnings consistency may prefer the Financial/Industrial sector.”
South Africa remains vulnerable to international events, though in 2006 the MSCI Emerging Markets Index outperformed the MSCI World Index for the seventh year running. “Positive sentiment can turn negative with great rapidity,” cautions Mr Hansen. “South Africa is vulnerable as our current account deficit has been financed by strong inflows of foreign funds.
“Any change to this benign situation could impact negatively on the rand, equities and business confidence.” Local vulnerability has contributed to growing support for offshore equities – a trend that may continue.
As always, diversification is crucial. And is vital that portfolio weightings accurately reflect risk profiles and strategic objectives on an ongoing basis as the various indices leap frog and ebb and flow in values. So, watch your weight this year.
 

Copyright © Insurance Times and Investments® Vol:20.3 1st April, 2007
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