Our Investment Approach

• Intro
• How We Differ
• Sector Allocations
• Selecting a Unit Trust

Determining Sector Allocations

Much of the performance of a portfolio will depend on asset and sector allocation. If you have the asset band sector allocation right, the choice of a particular fund within a sector makes a relatively smaller difference. The recent move to reclassify unit trusts and tighten up on the unit trusts' asset allocation mandate makes it easier for us to find unit trusts that match the sector we want exposure to.

When determining our market view and sector allocations, the factors we take into account include :

• Macro economic factors including interest rates (especially), the currency, economic growth and the stage reached in the economic cycle.
• The performance of international equity and bond markets. The JSE is correlated to the performance of other emerging markets. The JSE is also susceptible to weakness in the US equity markets (which in turn is correlated to the US bond market).
• Commodity cycles and the performance of gold and platinum in particular.
• Market sentiment and expectations. Crowd behaviour results in trends enduring longer than the fundamentals would support - the irrationally high valuations of small growth companies (and IT in particular) 15 months ago is an example. The feared impact of Y2K is another example. We look particularly for instances where market sentiment differs from reality (or at least our perception thereof).
• The valuation of the JSE relative to other world markets and especially relative to other emerging markets.
• The relative valuations of different sectors of the JSE, especially relative to expected growth of earnings into the future.
• Market themes that come into play at different parts of the economic cycle.
• Price performance and technical analysis.

While is not possible to predict the future consistently accurately, it is often possible to get a sense of which sectors have a greater chance of out-performing and whether the market as a whole is attractive on a risk/reward basis.