Changes to our portfolios
The South African investment industry has had a lot to deal with over the
last 2 to 3 years – from Atul to Zuma and all the letters in between –
and it shows in the performance figures of all asset classes.
As investment advisors we are negotiating our way through this precarious local and global political landscape, with the preservation of our clients’ capital continuously top of our minds.
There really are only two ways of achieving this target:
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Ensure pinpoint allocation to the appropriate asset classes during the economic cycle.
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Continuously monitoring fee structures to ensure that they have been optimally negotiated enabling us to achieve our pre-determined benchmarks net after fees.
This serves as the foundation for the amendments to our model portfolio which were implemented in May 2018. For these reasons we will be making amendments to our model portfolios that are briefly summarised below;
Asset Allocation
Since the inception of the FVV Capital model portfolios, we utilised asset allocation funds to express our general investment views. Asset allocation funds typically allocate capital to the various asset classes based on the views and investment style of the specific manager. The different views and styles were then blended in a model portfolio to achieve the desired investment benchmark.
These type of funds have been under the cosh for the past number of months due to the weak performance associated with the global markets, coupled with relatively high and inflexible fee structures. With the proverbial winds of change blowing across our local political landscape we are of the view that we need greater intervention in ensuring optimal allocation to our preferred sector and asset classes. This can only be achieved by replacing the existing asset allocation funds with building block funds which will allow us immediate and active exposure to such asset classes as might be deemed appropriate at any point in time.
Reduction in fees
One of the biggest talking points recently has been the impact of fees during this period of sustained economic weakness. This has been no different for the clients of FVV Capital and we have been on a concerted drive for the past number of months to investigate ways to reduce the total fee ratio for our clients.
Building block funds and index tracking funds typically will be cheaper than the asset allocation funds. By utilizing cheaper investment vehicles we are able to reduce the costing structure for each and every investor that will indirectly enhance the portfolio return.
Our investment strategies currently focus on the following:
- Impact of the increasing interest rates in the US have on the fortunes of the US Dollar and therefore on the Rand
- Impact of increasing government wages, VAT rate and international oil price on the SA inflation rate which in turn is placing pressure on the performance of bonds, property and financial shares
- The impact on emerging market currencies, like the Rand, as a result of the turmoil in the Turkish Lira
- Impact of the various trade policy changes that the Trump administration is spearheading
- Impact on the Eurozone due to the policitical crisis in Italy
Changes being implemented
The process of revising our construction methodology from asset allocation to a building stock approach started towards the latter part of 2017 in our FVV Conservative Model Portfolio. In January 2018 we embarked on the process of realigning the FVV Moderate and Growth Model Portfolios. This is a process that is both time-consuming demanding extensive quantitative and qualitative research which was undertaken by our discretionary fund manager partner, Analytics Consulting. We have now finalised this process and the portfolio changes will be implemented during May 2018. The fund fact sheets reflecting the new portfolio construction will be available during the second week of June 2018.
We are confident that these changes will significantly enhance our probability of reaching, and even outperforming, our pre-determined benchmarks over any 3 or 5 year rolling period, depending on the model portfolio.
