During these turbulent financial times the temptation for private clients to alter their long term investment strategies in response to changes in the macro environment is high. With such bad news and volatility in equity and exchange rate markets some investors may be tempted into selling existing holdings at today’s prices in the hope of trying to buy them back cheaper in the future. There is, however, little empirical evidence to suggest that anyone can consistently time markets (either on the sell or buy side) correctly. "There is plenty of research to show that good quality stocks bought cheaply — whether measured by low price-to-book, a low price-earnings ratio or high dividend yield — have out performed the market over long periods", says Mark Logan, Head of Private Clients at Grindrod Bank.

Investors need to ignore sentiment

"It is important during these volatile times," adds Logan "for investors to evaluate their risk profile and to ensure that their asset allocation is correctly aligned to their needs. Above all investors need to ignore sentiment, stick to the fundamentals and be patient."

Grindrod Bank Private Clients consider it essential to comply with best practice — and with the Financial Advisory and Intermediary Services Act (FAIS) — and therefore conducts a thorough needs and risk analysis for every private client. Information relating to a client’s financial position, personal and tax circumstances, investment time horizon, income requirement, investment objective and risk tolerance is analysed in order to come up with a customised investment strategy for each client whether the client be an individual, family trust, charity or educational institution.

"Once an investment mandate has been agreed to by both the client and the bank, the portfolio is structured accordingly using an appropriate mix of asset classes such as equities, listed property, cash, preference shares, government bonds and off-shore investments," says Logan. "The balance between these asset classes is what protects clients through market fluctuations and serious downturns like the one we are currently experiencing. For this reason we recommend that clients only change their mandates, which have been structured to meet their own defined needs, if their personal or financial circumstances change and not in response to changing macro economic circumstances or even 'marketplace noise'", says Logan.

Avoid emotional or knee-jerk reactions

Essentially, mandates keep clients’ overall objectives in mind and are designed to keep their portfolios on track through thick and thin. It is important to avoid emotional or knee-jerk reactions. For instance, a move to off-shore investments in times of exchange rate weakness might seriously impact on medium-term portfolio performance when this trend reverses.

Logan also stresses the importance of rigorous stock selection in client portfolios, saying that, "Grindrod Bank Private Clients focus on companies that have proven management, healthy balance sheets and strong cash flows. An experienced portfolio manager will always invest in accordance with the client's long term mandate while being constantly aware of the risks in the investment environment. She or he will also be ready to take advantage of opportunities that present themselves from time to time."

"That is why, despite the current circumstances, and even the possibility of recession during the course of the year, we strongly advise private clients to hold firm at this time and not to change their mandates in response to short-term factors," concludes Logan.