One of the difficulties for a fund manager or an adviser is that most of the time the right decision is to take no action. To be fair, many sensible advisers have cottoned on to this: they got their fingers burnt by putting clients into faddish products such as small cap and technology funds.
But most no longer go down to the engine room and get involved in the nitty-gritty of picking funds. They just get involved in high-level planning, outsourcing the business of fund picking to designated investment managers (DIMs).
I am not sure if Glacier by Sanlam considers itself a DIM, but it certainly does fund picking as a multimanager.
Glacier researcher Luke McMahon believes slight adjustments to a portfolio can have a meaningful impact on investment values. Portfolio management is an iterative process that includes construction, analysis and then revision.
Even those who oppose market timing approve of what is called rebalancing. Portfolios with fixed asset allocation would want to realign the asset weighting perhaps quarterly. If over the quarter the equity allocation has moved from the 60% benchmark to 62%, it is brought back to 60%. Others might have more latitude and only rebalance once it is outside a 5% band around the strategic allocation, once equities were down to 55% or up to 65%.
McMahon says if the manager was completely inactive over 10 years, a 60% equity, 30% bond and 10% cash portfolio would have drifted to 68% equity, 25% bonds and 8% cash. Not a bad mix, as it is very close to the average balanced fund’s allocation. But undesirable, nonetheless, if the original allocation was deemed to have the right risk/return trade-off.
Alternatively, a fund that was subject to a constant mix strategy, reverting to the 60/30/10 allocation had a moderately higher investment growth but significantly lower volatility and lower draw-downs (or losses from peak to trough).
McMahon mentioned a strategy I thought had gone out of fashion (or at least its clunky name isn’t heard much), known as constant proportion portfolio insurance. This approach sets a base on the value of a portfolio and mixes equities and cash based on the amount of space there is to play with between the base and the portfolio value. This is sometimes known as the dynamic flaw approach.
But McMahon points out there are costs associated with rebalancing. One is higher transaction costs, including broker commissions and bid/offer spreads or purchase and redemption fees in unit trusts.
Capital gains tax might also be triggered.
He argues that only illogical investors try to guess which manager, stock or asset class will have tomorrow’s best performance. He says successful portfolios are based on research and reasonable expectations, not intuition.
Maybe not intuition, but I still believe there is a place for good judgment, for assessing the chemistry and the potential of an asset management team, something that cannot be reduced to spreadsheets. There is still art as well as science in fund management. From the outside, it looks as though multimanagement is all about hiring and firing managers. But this should be the rarest kind of rebalancing.
Even within a good blend of managers, they will not perform at the same time. There are fund managers who are bad and should never have been hired into a programme, but most of the time managers are dismissed just as market conditions are becoming more attractive for them.
This particularly applies to deep-value managers such as John Biccard at Investec Value and Piet Viljoen at RECM, who disappointed for seven consecutive years before a spectacular outperformance this year.
On Friday, credit card sales are expected to be at least 80% higher than a normal day as it is Black Friday.
In the US, this is the beginning of the Christmas shopping season — in fact, it is considered unpatriotic to display tinsel or reindeers before this date, when the focus should be on Thanksgiving. Here, the shops have been offering Christmas specials since early October.
But retailers are still trying to make Friday a special event. And for those who can’t make it, there is now Cyber Monday a few days later, when you don’t even have to go into the shop to buy bargains — you just have to have the fastest mouse.
Willie van Zyl, head of card issuing at Absa, says online spend is 40% higher on Cyber Monday compared to the average day in the year.
If you are going to splurge on Friday, heed Van Zyl’s advice. Always be aware of activity on your card. I signed up for Absa’s NotifyMe service to keep track of unauthorised transactions. I am sure all the other banks have something similar — no doubt FNB will claim theirs is the most space age and throw in some virtual reality.
Van Zyl advises clients to change passwords and PIN codes regularly. This obsession with passwords reminds me of the cub scouts, but I suppose it is part of life. If you feel it has been tampered with, request a new card immediately. Keep a watch on your wealth.
But the most important advice from Van Zyl, which I can only re-emphasise, is to remain in control of your debt and the spending limit on your credit cards. Too many of us see a credit line as "our" money, but it is important to remember it is debt that has to be repaid.
People are even more prone to treat access bond facilities linked to a home loan as their "asset". But, remember, there is good reason that banks consider the money they have lent you as an asset. It is through the interest received on your debt that banks have been able to build those shiny head offices in Sandton and Rosebank. Ideally you must get to the stage at which debts have been paid off, and the bank is paying interest to you.
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