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Optimal Portfolio Structuring

By beled | August 23, 2013

So what’s the optimal structure for an investment portfolio?  Ask three different people and you’re likely to get three different answers.

David Leslie, MD of Belmont Asset Management in Cape Town gives us some insight into Belmont’s strategy: ‘For optimal performance, you need to decide on appropriate local and international weightings, hone your individual stock selection and carefully consider your timing.  Our rule of thumb is 50% local equities and 50% international equities.  Of course, I’m generalising, as each portfolio is structured differently according to client risk and reward requirements and each one is bespoke.  That said, the 50/50 rule is a solid starting point which delivers diversification and a hedge against local market fluctuations.  It is, of course, also possible to incorporate an element of offshore diversification into local stock selection by investing in equities such as Richemont or SAB.

‘When selecting individual stocks, both in local and international markets, we always look for both value AND quality. This coupling is an important differentiating factor between ourselves and other value managers.  In other words we do not go around kissing frogs hoping that they will turn into princes.    It takes guts to be contrarian, for example, by buying cyclical stocks in the current climate, but quality always shines through and choosing quality shares ensures that any capital loss will be minimised.

‘And finally, one of the primary reasons for having a bespoke portfolio is medium term timing (tactical asset allocation).  Choosing the right equities is only part of the equation – up to 80% of performance may be attributed to asset allocation and getting in (or out) of the market at the right time.  The experience which comes from having lived through many market cycles in the past, a robust and consistent investment philosophy and a long term approach to wealth creation are your best allies when playing the timing game.’

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