We work hard at Chartered on educating our clients about long-term investing and the importance of diversification. When we talk about diversification, there are a number of ways of implementing this and it really means not putting all your eggs in one basket.
Our asset consultants ensure that your investments are not only diversified among about eight asset classes – with South African equities, bonds, property and cash, and then international equity, bonds, property and cash, being examples – but also between a number of asset managers, including Coronation, Investec and Prudential. These managers then ensure that the shares they invest in are diversified among numerous companies and various industry sectors: for example, if they were to buy shares in the banking sector, they would not invest only in one bank but in a few banks.
African Bank – a sobering reminder
We have had a few questions in the last few weeks relating to African Bank. Many of you may have read or heard news of the collapse of African bank, a company once in the top 40 shares on the Johannesburg Stock Exchange, valued at about R26billion in 2013. The value of the shares in the company fell dramatically following a profit warning announcement in May this year, and a further announcement on 6 August this year that losses for the year amounted to R6.4billion. The value of the company plummeted from R10 billion on the Wednesday to R800million on the Friday and was finally suspended on the JSE.
Most asset managers in South Africa and many international managers held this share in their portfolios and many fixed interest managers owned corporate bonds in African Bank. The result of this was that many portfolios suffered some losses. Looking at the post mortem of African bank, it all seems so obvious that trouble was imminent and the business practice of lending people money who could not afford to repay the loans was not sustainable … the benefits of hindsight.
For us and our clients, this occurrence has just reiterated the importance of diversification, both across asset classes and across fund managers. Anyone who had only invested in African Bank shares or had only bought African Bank bonds would have lost the majority of their wealth.
We value your investments as much as you do, and understand what that money means to you … so we ensure that it is safe and working for you.