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How to invest R1m

Jul 19 2011 09:59

EACH week we ask an expert to allocate a hypothetical lump sum of R1m. Investment ideas range from the stock market and stamps, to art and wine.

Gregg Sneddon, a financial adviser at Cape-based planning firm The Financial Coach, shares his thoughts:

I am a huge fan of unit trust and exchange-traded funds (ETFs) - mostly because I don't have the time (or desire) to actively manage a share portfolio and the fees are also attractive; you can access most funds at no initial fees these days.

I also like the fact that there is no capital gains tax (CGT) on any shares that are bought and sold by the fund. I only pay CGT at the end.

So if I had R1m to invest right now, I would probably put most of it offshore. This is not because I am pessimistic about the future of SA or think that the rand is suddenly going to weaken, but mostly because the offshore markets (especially the developed ones) appear to be providing far better value than the SA and most emerging markets at the moment. 

Sure, there is a lot of uncertainty (and possibly even "blood on the streets") - but isn't this exactly the time that one should be buying? After all, the return on an investment is a function of the initial price paid; the lower the initial price, the greater the potential final return.

Investing offshore can be done via one of two methods: asset swap funds or direct offshore investment via tax clearance and exchange control. In my opinion, tax clearance and exchange control is the preferred option, but the SA Revenue Service (Sars) has made it so difficult to get tax clearance certificates - despite the fact that the limit has been raised to R4m per year - that it is easier to invest via an asset swap fund.

Assuming I could get a tax clearance certificate from Sars in a reasonable amount of time, I would probably put about 50% of the money into a balanced fund – something like the Ashburton Asset Management Service.

The fund never has more than 50% in shares, with the balance in the other asset classes (excluding property). The equity exposure is done by Ashburton and is global, with a bias towards developed markets. The asset allocation is fairly actively managed and the funds have given compound annual returns of around 7% in sterling. I'm happy with that from a low volatility investment perspective.

I think that I would invest the balance of the R1m as follows:

• An allocation of 25% into the SIM Global Best Ideas Fund (managed by Kokkie Kooyman, who was voted fund manager of the year in 2010 for his Global Financial Fund – Investment Week's Fund Manager of the year).

This fund is Kokkie's best picks – globally. There is a fair amount of exposure to developing markets, but quite a bit of that is via companies that are listed in the West but derive substantial parts of their earnings from the East. There is also a small-cap bias on the fund so it is likely to be a bit more volatile – but that's to be expected when you invest in equities. 

• The other 25% I would probably put into something like the Prudential M&G Global Recovery Fund. This is a multiple award-winning fund with a deep-value bias; shares are selected from UK-listed companies. This is classic Warren Buffett-type investing.

Reporting on each of these investments is good, and there is more than enough access to information from each of their local offices.

 - Fin24

- Previous Dream Big investment ideas:

Robin von Holdt, CEO of Top 100 SA Wines.

Charl Bezuidenhout, owner of the Worldart-gallery in Cape Town.

Schalk Louw, head of Contego Asset Management.

Alan Rogers, president of the Philatelic Federation of SA.

investing  |  etfs  |  money


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