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Growth and diversification – having your cake and eating it

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08 Apr 2019

A long-term cheap lunch

The Sasfin BCI Flexible Income Fund managed by Philip Bradford, the Chief Investment Officer at Sasfin Asset Managers, won two awards at the Raging Bull Awards in January. The Fund received awards for the top performing fund in the Best South African Interest-Bearing Fund and the Best South African Multi-Asset Income Fund categories. Since inception and net of fees, the Fund has returned an annualised 10.1% against the benchmark, the SteFI Composite Index, return of 7.3%. This is a remarkable achievement and testament to Philip’s disciplined process and skill. Over the three years to December 2018 the Fund delivered a cumulative 42.1%, significantly ahead of all other major asset classes in Rands.

Philip now joins the illustrious list of  investment professionals at Sasfin Wealth that have won Raging Bull awards over the years across multiple categories, including Errol Shear, David Shapiro and Johan Gouws.

As a provider of wealth and investment solutions, we are first and foremost a people business in terms of the nature of the services and solutions we provide as well as the calibre of professionals we employ to deliver these solutions. We take great pride in the depth and breadth of professional talent in our business.

It is not all about performance

While we celebrate these accolades and the recognition by our peers, we do not confuse short-to-medium term performance in a particular asset class or mandate category with the need to take a balanced view and match investment solutions with the long-term investment goals of an investor.

Over the last 3 to 5 years, overall investment markets have been exceptionally challenging. Uncertainty, corporate scandals and politics, among others, have driven material sell-offs across local equities and listed property.  Offshore developed market equities, where Sasfin manages a significant amount of money on behalf of clients has certainly been better but not without its own challenges, with 2018 the worst year for US stocks since 2008.

Unusually, over 5 years, fixed income instruments like bonds have significantly outperformed what the industry typically refers to as “risk assets” locally. Risk assets include equity (shares) and listed property. They tend to be more volatile than fixed income bearing investments but are expected to, and have historically, delivered higher returns over the long term. 

Over the last six years South African equities and listed property have outperformed cash, despite the listed property sector significantly under performing in 2018. Global stock market has also increased, due to various global factors. One of the most topical factors is the heightened trade relation uncertainty between China and US. Global growth is potentially decelerating as the world’s two largest economies lead the slowdown. At the same time, the Eurozone continues to experience sluggish growth, with the uncertain outcome of Brexit negotiations not helping matters.

 

Stick to the long-term plan

This recent under-performance of risk assets, increased volatility and uncertainty often leads to rash decisions to aggressively decrease exposure to these instruments in favour of less volatile income assets with steadier and more certain returns. However, this thinking would be short-sighted – risk assets are by their very nature volatile, but over the long-term volatility smooths out and risk assets should outperform. Instruments like equities property stocks are critical building blocks in growing wealth over the longer term.

However, one of the most important realisations from the last six years, and particularly 2018, is the importance of a well-diversified balanced investment solution. An appropriate mix of equities, property, fixed income assets and other asset classes helps create an adequately diversified portfolio to meet long-term investment goals. This concept was originally popularised by Harry Markowitz in the 1950s when he stated that diversification is “the only free lunch”. We might argue that even though there may be no real free lunch, diversification definitely provides a cheap lunch, particularly at a time of broad uncertainty.

At Sasfin Wealth we have key competencies and solutions across asset classes globally. So, as we celebrate Philip’s achievement in bringing home yet another Raging Bull, our focus is on delivering the right solution to meet your personal investment goals.

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