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Pimping up your portfolio

Sep 11 2011 10:52

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A Fin24 reader writes:

I am a 31-year-old married professional who is looking for additional low to medium risk investment opportunities to supplement and possibly further diversify my portfolio.

My portfolio is currently invested in Allan Gray balanced (12%) and equity (20%) unit trusts, Investec property unit trusts (3%), offshore funds in dollar (40%), Satrix 40 (8%) and local cash (17%).

I am reluctant to place lump sums into high risk investments such as equities, nor would I like to convert any dollars into rands at this point. Is there anything else out there that could contribute good returns over the next five to 10 years?

Joanne Baynham, fund manager at MitonOptimal Multi Asset Management, responds:

I would like to commend you on a well-constructed portfolio which has a good balance in terms of your age and your risk profile of medium risk tolerance.

You did not disclose the breakdown of your offshore funds, but if they are predominantly equity then that allocation makes perfect sense given your longer term time frame of five to 10 years.
 
You have a good allocation to equities but appear to be a little underweight to fixed income. I would recommend shifting about 12% of your cash weighting towards a flexible fixed income manager. There are a number of reasons for this.

Firstly, it would be a more tax efficient vehicle for your cash; secondly, the manager would allocate funds between government, inflation linkers and corporate bonds and thirdly, the manager would allocate money along the yield curve (switching between long date and shorter dated bonds).

The big benefit of a flexible fixed income manager is that its mandate allows it to be tactical in the fixed income space and have a large portion in cash, should it find that valuations are no longer compelling. This is especially important as bonds have enjoyed a long bull market and yields are a lot lower than they have been historically.

The biggest portion of your portfolio is your allocation to offshore funds, and in this space we would recommend that you have a mixture of equities and offshore property. Bonds and cash offshore do not offer attractive returns over the long run, so this should be a very low portion of your offshore allocation. 

In terms of the equities, we recommend high and sustainable dividend-yielding funds, both in the active and passive space – ie managed funds and electronic traded funds. - Fin24
investments  |  money clinic
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