Thursday, 23 June 2011 - 20:00

 

Charts

Investing R 1 000 000

For us at Seed, investing is all about asking the right questions first and only then making an appropriate investment. We believe that in making an investment you need to start from the top (long term strategy) and then move down to deciding on which investments (stocks, unit trusts, etc.) need to be in the portfolio.

We don’t believe that an investment process should be onerous, but we definitely think that one should follow a structured process when deciding how to invest R 1 million.

At Seed we implement a three step value add process.

Step 1: We need to understand your long term strategy in order to attain the desired result for you.
Step 2: We need to understand the current valuations of the asset classes included in your portfolio to decide on your asset allocation.
Step 3: We need to make the relevant investments in shares, unit trusts, etc. to get to the desired position.

Let us look at a simple example.

Step 1:

Therefore, if:
• you want to target a return of CPI + 4% per annum, and
• you are prepared to lose between 5% - 10% over a one year period, if the market drops significantly, but
• you are prepared to invest for at least 3 years in the portfolio to ensure that the portfolio has enough time to recover from any potential short term losses,

then you should invest into a MODERATE portfolio that will look similar to this allocation:

Step 2:

Now that we have an understanding of your risk profile, and therefore know more or less how to invest your R1m but we still need to do the ground work and determine whether each asset is expensive or cheap (and therefore whether to under or over weight the asset classes).

At Seed we don’t believe in forecasting, instead, we prefer to invest into assets that offer good value and sell assets that offer no (or little) value. Based on our research we have the following views of the current valuations of the different asset classes:

Step 3:

We believe that only once steps 1 and 2 have been completed is it prudent to make a long lasting investment.

Based on the above assessment, we have a large overweight investment in offshore blue chip equities but avoid developed market cash and bonds (or funds that offer similar). On the local side, most assets aren’t offering much value and we are therefore underweight.

Our focus on local equities is companies offering high dividend yields priced at low PEs as they offer a margin of safety. We would also allocate a portion of high net worth client assets to hedge funds. Finally property offers investors a decent initial yield with prospects of growth in excess of inflation. Here the investor should focus on the yield, and be less concerned about capital fluctuations.

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Kind regards,

Vincent Heys
info@seedinvestments.co.za
www.seedinvestments.co.za
021 9144 966

Thu, 23 Jun 2011

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