Here’s your action plan

More interest-rate increases are expected, the rand has wobbled and “risk” is being heard a lot in investment speak — so what should the average investor be doing with his savings?

Anil Thakersee, retail marketing head of Old Mutual, said this week that investors should respond according to their own financial needs.

He did offer tips for three broad categories — retired people or income investors who need to live on savings; investors close to retirement who need to preserve capital; and young investors who need to build wealth.

For the income investor it’s not bad news: “For the first time in a long time, rates are rising, which helps income investors,” Thakersee said.

He said it was most important to keep income growing in real terms. “At least equivalent to inflation, if not higher.”

Old Mutual Asset Managers (Omam) chief economist Rian le Roux expects another two 0.5% hikes in this cycle.

Thakersee said the expected upwards move in interest rates offered income investors “some relief” and a chance to lock in at higher yields.

He said that as rates fell, many investors had done the right thing by choosing the “hybrid income funds” to beef up their monthly income.

“Many chose the Fixed Interest Varied Specialist sector, which took in R15-billion over the past four quarters.”

According to Omam, the average Fixed Interest Varied Specialist fund lost only 0.3% between the market’s peak on May 11 and the end of June this year, while the All-Bond index lost 4.2% and listed property fell 19.5%.

(See page 14 for a list of all the domestic unit trust categories.)

However, Thakersee said many people had not accumulated sufficient savings, “so there is a place for equities”.

Over the three years to end-June, cash would have given an annual return of 6.7% while the Fixed Interest Varied Specialist funds would have given you 8.9% for very little extra risk. The general equity category would have given 30.4% more than that — but with about seven times the volatility.

Thakersee said the capital preservation investor was typically about five years from retirement.

“They have been the primary beneficiaries of the bull market,” Thakersee said, pointing out that the average balanced fund has doubled investors’ money in the past three years.

“Now these investors have an opportunity to lock in these gains and protect them,” Thakersee said.

He said this category of people could “now look at the Absolute Return sector” of unit trust, which has attracted R8-billion in the past four quarters.

The sector lost a mere 2.6% during the past two months of market softness. However, “these investors should be aware that their investment horizon could still be 20-30 years, so exposure to growth assets is still required”.

The growth investor is someone early in his or her career who has not yet built up any significant capital.

Thakersee said “these people are going to be the most affected by the interest-rate cycle as they have mortgage bonds and credit-card debt”.

However, he said that, as they had time on their side, they could “ignore the markets completely” and take on higher risk for higher returns.

They should invest largely in equity funds and in offshore investments.

Get it right first time

Director of Investec Asset Management Jeremy Gardiner said it was crucial that people understood their investments. He said it was better for a third party to analyse your financial situation because nobody gauged their own appetite for risk correctly.

Once you have worked out the right plan for you, stick to your strategy.


Sam Houlie, portfolio manager of the Investec Cautious Managed Fund, said the South African stock market was looking expensive and that company earnings were at a peak in real terms. Dividend yields were at the low end of their historical range.

He said he did not expect the overall market to do exceptionally well — better than bonds or cash, “but the returns we’ve been used to are a thing of the past”. Houlie added that “I don’t think you can make significant amounts of money” from where the market is currently.

However, Houlie sees opportunities in financial stocks such as SA’s banks. “The banks will do fine over the next three years even though the rand may weaken and rates may go up.”

On the commodities side he prefers defensive stocks such as Sasol and Mittal, which have less downside.

Steve Mills, head of absolute return portfolios at Sanlam Investment Management, said at this week’s Financial Planning Institute annual convention that “it does require some courage to move back into markets now, but don’t be too nervous”.

He said that despite short-term sentiment, the fundamentals for SA were still strong.

Mills said if you wanted to do better than cash in the next 18 months, look to buy financials and industrials “when there is a big market dip”, and add to listed property holdings as “we’ve had the big correction and it will outperform cash”.

While equities were still more attractive than bonds, he said that investors could add to their bond holdings whenever yields moved towards a more attractive level of 9%.

Sunday Times
31 July 2006 01:27:00 PM

Article by: Chris Needham -