by | Jun 1, 2022

Market volatility and the inherent risk involved when investing is unavoidable. It is well known that if you wish to grow your wealth long-term, you need to take on some form of risk within your portfolio and that is achieved by holding equities.

The higher the risk of your portfolio, according to theory, the higher the return you should receive for taking on that risk. While we know that this is true, we also know that we need to have patience. If we look back through history, markets have always moved from the bottom left of the graph to the top right. There will be periods, however, when markets move up, down and sideways, but the long-term trend has always been positive. This is how markets work, economies will stutter, and they will grow, companies will emerge while others ride out the storm and opportunities will present themselves. Holding equities within your portfolio will take you through that rollercoaster ride but if you have the patience to sit tight, you should be rewarded over the long-term.

Through the market volatility we are fortunate to have Morningstar partner with us and serve as our investment specialists. Given the recent volatility brought about by the war in Ukraine, regulatory reforms in China and global inflation that has led to rising interest rates, I thought it would be a good time to review our investment philosophy and have a refresher on why we manage our client’s money the way that we do and why we use model portfolio.

Below are extracts from our investment philosophy document which is always available on request. Please contact your wealth manager if you wish to get your hand on this or wish to discuss portfolio construction in more detail.


The legislative environment and investment industry are complex, and the pace of change makes it a challenge to focus on running a business that is client-centric, while staying on top of the more technical and administratively cumbersome parts of managing an investment capability. Combine it with the fact that there are nearly 1500 registered unit trusts to choose from in South Africa, complicated pricing models and ever changing markets and the task is even more daunting. This translates into a challenging portfolio construction process, hence the decision to partner with Morningstar Investment Management.

Together we have established a range of investment portfolios that will facilitate the active management of our clients’ portfolios. This follows a strict process whereby investments are managed by an Investment Committee of specialists with proven track records. In their selection of unit trusts, the investment committee aims to achieve an appropriate degree of diversification while combining the investment expertise of quality investment managers.

All portfolios are subjected to rigorous qualitative and quantitative analysis when selecting underlying unit trust funds. The portfolios are managed to meet the needs of end-investors while taking the investment landscape into account.

Model portfolios provide you with many benefits in terms of flexibility, liquidity and transparency. We negotiate reduced fees on the underlying funds where possible to ensure that our clients benefit from cost-effective portfolios.

Please note these portfolios are actively managed and changes may be subject to capital gains tax. You will receive communication prior to any portfolio changes which will give investors an opportunity to speak to their financial advisers to enquire about CGT.


We invest for the long term   We offer portfolios designated to stand the test of time. That means investing with patience and the confidence that comes with rigorous research and careful diversification. It also means tuning out the short-term noise that distracts many investors, impeding their chances of reaching their goals.


We are independent thinkers   We don’t play favourites or allow external factors to cloud our judgement when we’re making investment decisions. Instead, we follow Morningstar’s in-house research wherever it leads us, even if it means taking a position that falls outside of the mainstream.


We employ a disciplined, consistent investment process   Because there are no shortcuts to a good investment outcome, we follow a well-defined process that joins quantitative analysis with qualitative research. Every security we evaluate must pass this exacting test before we’ll invest in it.


We actively manage portfolios   We believe that, through disciplined asset allocation and incisive research, we can add value for our clients. Thus, we leverage Morningstar’s deep analytical resources in constructing portfolios and selecting securities. We believe this will yield better outcomes than a purely passive approach.


We are sensitive to costs and taxes   We appreciate the importance of minimising expenses and use low-cost vehicles, including index funds, whenever possible. We also take steps to avoid transaction costs and taxes, either by favouring managers who trade infrequently or refraining from transacting ourselves.


We invest clients’ money as if it were our own   This properly aligns our interests with investors’ and ensures that we only offer strategies in which we have the utmost confidence.


We communicate in a timely and candid fashion   We strive to clearly explain our approach and investment decisions. We also aim to provide complete and transparent accounting of our investment performance. This includes admitting to any errors we’ve made in managing portfolios and lessons we’ve learned along the way.



Our disciplined investment process drives portfolio construction. It is imperative that the risk, return and time horizon objectives of clients are correctly analysed and matched to investment managers. Portfolios are subject to both a qualitative and quantitative due-diligence process which allows us to identify and select only the best quality unit trust funds for our clients’ portfolios.


Asset allocation is the primary driver of both investment performance and portfolio risk.  Asset allocation is the process of allocating a proportion of investment capital to the various asset classes, namely equities, fixed income, property and cash, both in South Africa and offshore. Each asset class has different risk and return characteristics and diversification benefits can be achieved by selecting a mix of the most appropriate asset classes.

Each portfolio is managed to ensure it meets the correct standard when assessed against the risk tolerance of an end-investor. This allocation is monitored on an on-going basis to maintain each portfolio’s risk and return profile. In addition, the investment committee monitors the fundamental characteristics of specific investments with a view to determine whether asset allocation changes are necessary. Underlying managers have the flexibility to move between the various asset classes based on current market conditions.


When constructing portfolios, specific guidelines are considered to decrease the risk in the portfolio. Limitations are set on the number of funds, the minimum size of the fund, the allocation to a single fund and the allocation to one management company.

We believe in portfolio consistency. Therefore, when we believe in the investment style and philosophy of an asset manager, we construct portfolios with building blocks across all models, moving up the risk profile range of that specific management company where possible.