Building an investment portfolio

Navisha asks: Would it be better (in terms of cost efficiency and
risk/return) to invest in unit trusts across a few investment institutions like Investec, Allan Gray, Coronation, Foord and Absa, or to invest across various funds from just one institution?

Then if I add some exchange traded funds to my portfolio and also add on a few blue-chip shares (active investment through an online share trading platform) as well as some cash investments, surely that would give me a well enough diversified portfolio without going through a financial advisor?

Maya replies: You need to make sure you are not duplicating investments and that you are also containing costs.

When you invest in both unit trusts and exchange traded funds (ETF’s) opt for unit trusts that are contrarian or offer exposure to markets that are not covered by the ETF.

For example having an ETF and a general equity unit trust may be duplication as you land up with the same shares.

Companies like Allan Gray for example tend to be deep-value investors and their portfolio would not look that similar to an index tracker. They underperform a strong market and outperform in a weak market.

Foord, Cannon Asset Management, Nedbank Rainmaker Fund, Investec Opportunity fund and Coronation’s Top 20 are also examples of funds that aim to outperform through stock selection and a contrarian market view.

Another option is to go for flexible unit trusts that can invest across all asset classes including property, bonds and cash. You would then be getting exposure to a broader range of asset classes and they are also lower risk than an index-tracking fund.

Alternatively you could opt for unit trusts that provide offshore exposure that you are not getting through the ETF.

If this is your strategy you would not need to have more than one or two unit-trust funds. I am not sure how much you are planning to invest but the debit order minimums are in the region of R500, so by the time you have your ETF and two unit trusts you would need to be investing R1 500.

Another option is to invest via investonline.co.za. This site allows you to invest across a range of unit trusts with no upfront fees and an additional management fee of 0,5%. Once you have filled in a questionnaire the site recommends a portfolio of unit trusts based on your risk profile. There are plans to add ETF’s to this platform. The minimum monthly debit order is R2 000.

In terms of investing directly into the stock market, make sure you have a strategy. This could be your dividend portfolio in retirement. If you build up a portfolio of blue-chip shares by the time you retire the dividends from those shares would provide a healthy tax-free income in retirement.

Read more news, blogs, tips and Q&As in our Smart Money section. Post questions on the site for independent and researched information.