Getting to grips with asset management philosophies

The world of saving and investing is confusing at the best of times. But you really need your wits about you when considering an investment in one of the 950-plus unit trust funds on offer in the South African Collective Investment Schemes industry.

If you plan to go-it-alone you need a solid understanding of both asset classes and risk and return. There are unit trusts funds that satisfy any combination of these key concepts. You must also consider the investment philosophy of your preferred asset management firm.

 "An investment philosophy is a set of principles that inform and outline the investment decision-making process of the portfolio manager," says Candice Paine, head of retail at Sanlam Investment Management. Local investors can choose from a number of asset management firms that rely on investment philosophies to differentiate their product offering.

Mike Ronald, head of the investment team at Marriott Asset Management, observes that these philosophies are subject to the ebb and flow of business and investment cycles. Although most asset managers go through periods when their investment "style" is effective they tend to struggle with consistency.

An investment philosophy can help you to choose between one asset manager and the next. "There are several theories and philosophical approaches that guide asset management decisions and they each have their own merits," says Kwaku Koranteng, account manager at Investment Solutions.

Investment objectives
You can get a feel for an asset manager's philosophy by considering the category a unit trust is listed under as well as the fund fact sheet, which is provided by the asset management firm to spell out the fund's investment objectives.

Most asset managers in the equity unit trust fund space make use of active management strategies that require them to make frequent buy and sell decisions in order to outperform a pre-defined benchmark. They will "pick" a basket of companies to beat the JSE All Share or JSE Top 40 Share index, for example.

"Some asset managers like to buy investments that they think are undervalued in the anticipation that the value of the investment will grow as other buyers of the investment realise its true value," says Ronald. This style is known as value investing. He explains growth investing as a manager strategy that prefers companies that are likely to grow their earnings faster than others. "Whether an asset manager follows a growth or a value investing strategy, they will want to buy shares at the bottom and sell at the top," he concludes.

For more conservative investors, late in their life stages, income focused investing makes sense. An income-focused asset management firm chooses investments that are likely to provide a reliable and growing income and where the price of the income stream is below average.

Your preferred asset management philosophy will depend on your risk appetite. If you are a conservative investor you might favour unit trusts in the fixed interest space, but specialist equity unit trusts will satisfy- those with a more aggressive risk appetite.

 Nowadays most investors defer the asset allocation decision to the asset management firm. Instead of worrying about whether to invest in fixed income or equity unit trusts you can simply purchase units in asset allocation funds. The fund managers of these funds continuously monitor the investment environment and determine the optimum mix of asset classes.

Subscribe to the M&G for R2 a month

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

And for this weekend only, you can become a subscriber by paying just R2 a month for your first three months.

Related stories

Making healthy medical aid choices

South Africa's healthcare landscape is divided between a public and private- sector.

Getting to grips with your scheme’s lingo

Co-payment This is the portion of any medical expense for which you are liable. The amount varies from one scheme to the next and between options.

Navigating the risk and return minefield

Your retirement hinges on an asset manager's ability to balance risk and return

Managing assets is important

Millions of South Africans- supplement their employer-linked pension funds via additional contributions to retirement annuities and unit trusts.

Offshore equities offer pockets of value

This year will go down in history as a year of extreme stock market volatility.

How much is enough for the golden years?

Ask a stakeholder in the retirement provisioning space how much you should contribute to your retirement fund and they'll probably say 15%.

Subscribers only

ANC: ‘We’re operating under conditions of anarchy’

In its latest policy documents, the ANC is self-critical and wants ‘consequence management’, yet it’s letting its members off the hook again

Q&A Sessions: ‘I think I was born way before my...

The chief executive of the Estate Agency Affairs Board and the deputy chair of the SABC board, shares her take on retrenchments at the public broadcaster and reveals why she hates horror movies

More top stories

Exclusive: Top-secret testimonies implicate Rwanda’s president in war crimes

Explosive witness testimony from the International Criminal Tribunal for Rwanda implicates Paul Kagame and the RPF in mass killings before, during and after the 1994 genocide.

Shadow of eviction looms over farm dwellers

In part two of a series on the lives of farm dwellers, Tshepiso Mabula ka Ndongeni finds a community haunted by the scourge of eviction

Editorial: Crocodile tears from the coalface

Pumping limited resources into a project that is predominantly meant to extend dirty coal energy in South Africa is not what local communities and the climate needs.

Klipgat residents left high and dry

Flushing toilets were installed in backyards in the North West, but they can’t be used because the sewage has nowhere to go

press releases

Loading latest Press Releases…