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Fund consolidation challenge

A Fin24 user looking for capital growth wants to consolidate his investments. He writes:

I'm 42 years old and have 3 children under the age of 12. I have R5 000 000.00 invested in the Coronation Industrial Fund, R2 000 000.00 in Oasis Crescent Fund, R500 000.00 in 36ONE Flexible Fund, R200 000.00 in PSG Equity and R500 000.00 in Foord Equity.

I'd like to consolidate my investments. Which should I sell and which funds should I keep while looking for capital growth.

Stephen Katzenellenbogen CFP® of NFB Financial Services Group responds:

Every individual has his/her own unique set of investment circumstances which determine the way a portfolio is constructed. The detail you have provided is not sufficient to make any recommendations however I can make some observations and comments which will hopefully help you.

The unit trusts you have invested in are categorised as high risk, as they are equity funds, and should be approached with at least a 7 year investment time horizon (which you have unless you retire early). The risk rating largely relates to the volatility and the longer you invest, the less the potential for loss.  Historically and over the long term, equity has outperformed all other asset classes.

Generally speaking your fund selection would not be appropriate for any short term goals or obligations.  

When analysing the portfolio, you have a SA exposure of over 90%. It may be worthwhile looking at the relative value of SA to global equity.  When allocating to global assets, currency should not be the driving force, although a consideration, but rather the price at which you are buying an asset.

Whilst recognising that unit trusts has a diversified pool of assets you have 85% of your portfolio with two managers, one of which can only select industrial shares. Are you comfortable with this?

I do acknowledge that historically industrials have been the place to be. For your interest in 2013 there were 5 shares (industrials) that accounted for 71% of the ALSI total return; four of these appear in the Coronation Industrial Fund’s top 10 holdings.

I assume you own all the funds you mention as direct unit trusts. In terms of tax and estate planning you should look at the virtues and pitfalls of endowment and retirement annuities.

When done properly the cost difference of using a product versus a direct unit trust is often nominal and sometimes favourable for the product. When a unit trust is offered on a linked platform (unit trust, retirement annuity or endowment) the Manco does not have to do the administration and can therefore often offer a cheaper unit class which can offset the administration fee.

My closing consideration is tax: if you do sell any of your holdings you will trigger Capital Gains Tax. This should not deter you from making a decision.

You should consider talking to a financial planner who can assist you with all areas of financial planning including your investment concerns. You will be able to discuss ideas like the potential need for life cover if your asset base isn’t large enough to support your three children if you pass away.

- Fin24

* Do you have a pressing financial question? Post it on our Money Clinic section and we will get an expert to answer your query.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

 

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