BUSINESS NEWS - The importance of patience and time when investing for retirement, alongside having a knowledgeable investment adviser who understands and manages the risks of one's portfolio wisely, were illustrated by various speakers from Allan Gray at a seminar for financial advisers last Thursday at Oubaai Hotel.

Shaun Duddy, a manager in Allan Gray's product development team, said the key risks of a client in retirement are longevity, inflation and investment risk. Of these the latter is the only controllable factor.

With the possibility of people living longer and longer these days, the chances of a retiree living 30 years or more after retirement are much higher. 

Using statistics, Duddy illustrated that retirees should not take more than 4% of their starting capital as a starting income for their investment to have a good chance of providing a sustainable income.

This can be increased each year by inflation. Investment should also be focused on real returns to ensure that a client's portfolio is resilient against inflation and able to generate the returns necessary for the retiree's income to go the distance. 

He advised that at least 50% of a portfolio should be in growth assets like equities. 

Financial advisers attending the Allan Gray seminar, from left: Debbie Muller, Karina Scott and Erna Visser (all three from Sanlam), Deona Meyer from Securitas and Imke Russouw, who will be joining the Discovery team next year.

"As the allocation to equities increases, so do the chances of achieving income sustainably over 30 years. The total equity exposure in the Allan Gray Balanced Fund has been more than 50% between 1999 and 2016 and in this period it grew by more than 20%."

Andrew Lapping, Allan Gray chief investment officer, said the two big risks when investing a client's money are buying over-valued assets, and the risk of inflation. 

In South Africa the inflation rate has been steady at an average of between 5 and 6% over the past few years, and of greater concern was fiscal instability and the South African stock market remaining the same during the last 10 years.

With a fiscal deficit of 4,3% announced recently by Finance Minister Malusi Gigaba, Lapping foresees that tax collection will be raised, as the government is unlikely to curb spending. 

He said the most likely taxes to be raised are personal income tax and capital gains tax, but that a point has been reached where citizens may feel they are being overtaxed and tax evasion may result. 

"This has already started. Other ways to increase tax collection is to make the economy grow. This can be done through creating more jobs and increasing productivity. 

"To increase productivity, there is usually investment in plant and machinery, but with the unsure outlook at the moment, people are not investing. Productivity can also be raised by raising the level of education, but we do not have a proper education system.

"Our outlook for GDP growth is therefore pretty muted."

Despite these conditions, the SA market currently offers "selected pieces of value". He demonstrated with graphs how Allan Gray's investment philosophy of patience, valuation, and doing their own thing, as opposed to following the crowd, pays off to ensure investment growth.

The day was concluded with Grant Pitt, joint head of institutional client services at Allan Gray, speaking about Allan Gray's offshore partner Orbis's approach to valuation. 

Pitt explained that neither Orbis nor Allan Gray limits their search for investment opportunities to securities trading at low prices compared to earnings or book value.

Therefore they may also hold securities where the valuation may not appear cheap at first glance, but is in fact inexpensive relative to its value. 

This may be due to factors such as exceptional management, a competitive advantage, or an extraordinary growth opportunity. 

Said Pitt, "As bottom-up pickers, the common thread is that we focus on finding securities trading well below our assessment of their true long-term worth, as we believe that it gives us the best chance of enhancing our clients' savings and wealth."

ARTICLE & PHOTOS: ALIDA DE BEER, GEORGE HERALD JOURNALIST

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