Model Portfolios

The majority of our clients are invested through the mid to long term, seeking to create funds to meet the Education needs of their children, or more commonly, a fund to ensure a comfortable retirement. Subsequently, investment periods can stretch from 10 to 25 years and beyond. Any reasonably intelligent person reviewing history will see that over the same period IE. Since 1979, the world economy experienced many “boom and bust” periods. We shall explore the beneficial mathematical reasons for sticking to the initial fund picks over, at least the first phase of the investment process, later within this document. Never the less, some clients whom follow current international affairs or indeed some whose investment/s has achieved a considerable growth over a short period, seek a safe haven, to lock in their accumulated gains, until less turbulent times, either political or economical, arrive. Equally those, whose funds have achieved their anticipated value or growth percentage and who simply are seeking other fund opportunities or spreads to continue their planned program.

In light of the present period of uncertainty, the continuing turmoil in Iraq, interest rate and inflation questions and of course the U.S. Congress election process over the next few months, coupled to those aspects addressed above, some clients have asked us to create varied funding options which will allow the following strategies across currencies to be selected and analysed. Specifically…

Before we analyse the possibilities it is important that we explore the philosophical options opened to us. At the outset of your investment program, we will have assessed your needs and your overall investment philosophy. Based on this information an initial fund group would have been selected meeting those criteria. Normally those funds would form the basic platform, which in general terms would be added to during the term of the investment, by re-directing, part or all future contribution or/and redistributing fund gains into new funds, to create greater diversity within the portfolio.

Our clients are successful people and as such, normally have savings in CD’s, Money market accounts, bonds etc., outside of those investments with which we oversee. Subsequently, our programs are created and tasked to achieve growth over the medium to long term. Never the less, clients naturally have the flexibility to adjust their long term strategy, in light of current events, consolidating positions or taking advantage of short term trends and movements within the markets to increase gains. The latter requires both skill and understanding and should be discussed with your consultant.

The model strategies listed below demonstrate various possibilities. The funds will show a “Volatility Ranking” between 1 and 5. The following chart describes the type and the likely average annual growth this type of fund is expected to yield over a 5 year plus period. Subsequently, those investors seeking a different strategy for growth to meet a specific annual rate can therefore mix the “Ranking” type and their likely annual yield to meet their targets. Therefore someone seeking to achieve  a 10% annual growth rate over an extended period cannot at the outset have 80% of their portfolio invested within funds ranked as 1, with an average yield of 4-5% and expected 20% of their portfolio to generate the necessary 30% per annum to combine into the 10% net average, being sought.

Those that have been clients over the past five years will have seen their investment meet averages expected. Indeed a simple look at our Quarterly Valuation charts indicate that the most common funds our clients are invested have achieved double digit growth over the past few years. However, no one really expects to see those performances continue over the next few years. It is part of our job to analyse these trends and discuss them within our quarterly reviews. Equally, investors should have some idea of the basic mathematics coupled to a common sense understanding of what is actually realistic to expect.

Ratings

*Average P.A. over 5 years

NOTE:  Statistically, since 1945 no investment sector or developed country’s index has had a negative down cycle lasting more than three years. 

Those that do understand the risks involved, understand that within a properly constructed fund spread, it is not the risk of actually losing money, however the do have the risk of being time constrained. Let us use an example to illustrate this point. Some people in the US were advised by their brokers to invest in Tech Funds during 2000/2001. (Please note we did not give this advice to our clients. Indeed we moved people out of those stocks before the crash, only moving them back in 2003). Some of them were about to retire in a few years and should have been in consolidated protected funds. Never the less, they invested into these funds at the very height of the market. The worst example lost 92% of its value between 2000 and early 2003. It went from a high of $54USD to a low of $3.3USD. Its present value is $5.5USD. It is unlikely to return to its former valuation height this decade. This naturally impacts considerably on those individual investors caught poorly invested, in funds inappropriate for those near retirement. It is well to note that investment selection, especially within our client type, is not a six month to one year exercise, but a long term, commonsense look at the financial world and its future prospects.

The oldest adage regarding good investment, by common consent, is BUY LOW sell HIGH. A simple truism, which in modern times has been somewhat corrupted to Buy AT THE LOWEST sell at the HIGHEST. The seekers of the perfect investment to meet the latter statement are often caught poorly placed. Statistic exist, which have analysed the reality of a commonsense approach, whereby investors choose pragmatic programs and stick with them over a long period. Time rather timing being the key. Those investors, whom stayed with their programs, were invested when the best growths were achieved. Those seeking trends, if they missed the best few days over a long period, were seriously impacted as to their final value. Missing the best 16 days of a spread of funds, over a ten year period would see the value accumulated, reduced by 12%. The best 23 days, reduced by 21% in final value and 35 days missed a whopping 29%.

 Those investing on a monthly, quarterly, half yearly and annual basis within a medium to long term capital accumulation program will have the built in advantage that the average cost of a fund’s unit price will, in most cases, negate the short term volatility of markets. Never the less, no investor likes to see their investment lose gains earned at any time, especially when the world’s immediate circumstances do not offer a positive prospect of immediate growth. For many investors this current period is deemed to be such and as so, we are often asked to provide alternative havens for their accumulated funds, until a clearer view of areas of growth can be identified. The following is an attempt to meet these needs.

We instigated a similar exercise which was posted on the 1^st of May 2004.

I have taken the opportunity to extrapolate and analyse our model portfolios performances, for a two year period I.E. 1^st of May 2006 in an endeavour to provide a measurement of likely performances going forward.

It must be noted however that as we can structure fund spreads for our clients on an individual basis, especially regarding the risk tolerance and market conditions, few if any of our clients selected any of those model portfolios as their preferences.

I have therefore inserted an additional statistic which reflects the performance of the most commonly selected fund spread which either new clients utilised as their initial fund platform or older clients used to rebalance their investments as a further comparison aid. Not withstanding the reality in May 2004, many more of our clients have since amassed considerably greater amounts within their accumulation programmes to date, and perhaps these values are such to influence a number to take a more cautious view going forward.

We naturally offer to provide a more tailored selection to facilitate an individual client’s specific need, and as such the reviewed list that follows should be considered as a pragmatic starting point. Should an investor be desirous to change all or part of existing investment into any of the following, please contact us and we shall create the simple documentation required by the investment company to switch their holdings.

2004-2006 Model portfolio performances

Although our portfolio clients have similar concerns from time to time, regarding their investments in light of prevailing market conditions, they predominantly have periodically rebalancing programmes incorporated within their strategies.

Our clients who hold capital accumulation investments rarely are so programmed, equally their periodic payments can vary I.E. monthly, quarterly, half yearly, annually, which will affect actual results. 

Therefore, the performances listed below for the sake of clarity assumes that on May the 1^st 2004, US$ 10,000 was the starting value of each investment type and that no other contributions were made over the subsequent period.

I have also listed, using the same criteria the performances of the major benchmarks as a further indicator and assistance by way of comparative analysis. 

NOTE:   We suggested to most of our new and existing client seeking rebalancing of their fund spread, who had no specific allocation of their own, from early 2004 throughout the year the following funds. 

 These funds were predominately selected within the following risk parameters and allocations.

New clients with an aggressive investment attitude and those who a few years earlier had selected a conservative fund spread at the outset of their investments and wished to have emerging economy exposure selected the following.

It is an interesting phenomenon which always seems to occur in these exercises that one or two funds either outperform the others or fails dismally. In this case it is the Investec Global Strategy. Originally it was called the Investec Privitisation Fund, which when a number of companies were amalgamated consolidated a number of similar funds and changed its name. Our clients since 2000 have been invested as we always believed that it was the most aggressive medium/ low rate fund available. Since May 03 it has more than doubled, from  $40.60US to is May 06 value of $87.24US. This meant that the conservative spread “Growth” investors outperformed their more aggressive counterparts as this fund returned the best result.

In any event only the S&P 500 index which had a superb two years beat any of our 2004 funds, which was our Defensive Fund select although it did beat the Dow Industrial Index.

Some clients reading this with one of the programmes, may say “I have done well with my investments but not as well as above”. Please remember that the figures represent a $10,000USD amount on May1st 2004, with no added amounts. Some of you will have made two annual, or more frequent payments during this time which inevitably will impact on results. ( See “Dollar cost averaging”)

I hope we can continue the success going forward. Here are our suggestions for the next few years.

Safe Havens

The key objective is to provide a conservative investment spread, where investors can move accumulated investments, when they believe the markets are on a downward cycle and/or current political and financial circumstances are volatile.

Our suggested selection attempts to minimise the anticipated weakening of the US dollar going forward and as such provides exposure to other currencies.

Aug 1, 2006

Defensive Funds

The key objective is to control the risk to investor's capital and to seek a superior return over the medium return. This will be achieved by participating in the long-term growth of equity markets through investment with lower risk than traditional equity based investments coupled to bond and fixed interest instruments.

Aug 1, 2006

Conservative Growth

The key objective is to seek a diverse balanced program and a superior return over the medium to long term. Predominately within major trading areas with a small exposure to emerging markets.

Aug 1, 2006

Growth

The Key objective is to seek a diverse growth strategy within major markets over the medium to long terms, predominantly within mid to large cap international organizations weighted within developed markets with some exposure to emerging economies.

Aug 1, 2006

Performance Growth

The Key objective is to seek a growth strategy within the major and the emerging markets over the medium long term. 

Aug 1, 2006

Dynamic Growth

The Key objective is to seek a growth strategy weighted towards cyclical markets and sectors

Aug 1, 2006