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It's My Money with Lloyd Uren · Strictly Business Podcast

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  You're listening to Strictly Business Podcast with Lindsay Williams.
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  This edition of It's My Money is brought to you by Brenthurst Wealth, your partner
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  for global wealth creation.
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  Welcome to It's My Money.
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  It's My Money is brought to you by Brenthurst Wealth, South Africa's
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  multi-award winning boutique wealth manager.
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  This week I'm speaking to Lloyd Uren from Brenthurst Wealth in Granger Bay.
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  Lloyd, you sent me a piece which is interesting because the headline is how
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  diversified is your portfolio actually?
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  And I got to thinking about people that perhaps have a lot of what might be called
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  clutter in their portfolio.
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  They've got a bit of this here, a single stock here, an ETF there, a couple of
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  different countries.
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  But that doesn't mean to say that you are properly diversified.
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  I think that's one of the messages you're trying to get across here.
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  Thanks for having me on the show, Lindsay.
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  Pleasure.
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  Yeah, definitely.
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  I think there's a lot of misconceptions around what diversification actually is.
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  even get Clients sometimes who come in and say, I've got an investment with these
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  three different
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  platforms, so I'm diversified, but they're really the same investment in three
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  different places, which is a different can of worms.
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  But if we look specifically into sort of the investments and the holdings of a
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  portfolio, there is
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  kind of an idea that if you just have a few buckets of funds or shares or index
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  funds,
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  that you're sort of… well diversified and in the right places, but actually we tend
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  to find that there's a lot of over-concentration
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  and overlap between a lot of these funds.
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  So really we have more of a concentrated risk rather than a diversified portfolio.
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  Yes, you talk about concentration.
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  How does concentration work?
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  I mean, when I think of concentration, I think of the stocks that drove the NASDAQ
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  last year, for example, a few
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  AI-related stocks that pulled the index up.
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  but behind left a lot of other stocks trailing.
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  So maybe you could explain it from your point of view.
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  Yeah, absolutely.
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  So we look at the NASDAQ 100 or the S&P 500, and those kind of outline the top
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  performing companies in the
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  US.
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  But a lot of that is driven by those indexes are market weighted, which just
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  kind of takes
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  every company at their position of growth and how big they are.
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  So the likes of the Magnificent Seven, your NVIDIAs, your Googles and Apples,
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  they kind of over-inflate those
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  indexes because their value just continues to grow astronomically in relation to the
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  rest of the 493
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  companies.
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  So a lot of the time, the performance is getting pulled up by those.
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  But if we say we have an investment in a NASDAQ 100 ETF and an S&P 500 ETF and then
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  even
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  MSCI World Fund ETF, you kind of...
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  are pooling the same seven companies with the rest all in one bucket.
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  And so what really looks like a globally diversified portfolio is actually kind of
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  20% to 30%
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  in the same seven companies.
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  It's interesting, though, because some people say, but it doesn't matter because
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  it's going up.
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  I want to be in a NASDAQ ETF or a semiconductor ETF fund, whatever it is.
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  So it doesn't matter because it's doing well.
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  but what you're I think saying again, because you give a great example, you say
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  the deeper problem is the recovery maths.
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  A portfolio that falls 33%, you say, needs to rise 50% just to break even.
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  So the downside risk is as great as the upside potential in many cases, especially
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  when markets are
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  elevated.
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  Absolutely.
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  And I think the trap that a lot of people fall into is the momentum trap where if
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  it's going up, it's never going to stop going up,
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  surely.
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  So...
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  why not take more risk why not put more on but as soon as the opposite becomes true
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  that downward momentum is can be as
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  detrimental as the upward momentum can be beneficial so really what we are trying to
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  do as much as you know clients will say why didn't you
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  take more risk when we're in a in a bull run it's why did you take so much risk in
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  a bear run we really are
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  trying to play in sort of the the comfortable bracket in between where we're
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  making reasonable returns on an ongoing basis
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  rather than writing.
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  all the momentum and then having to recover from the downward slopes when they
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  eventually do come.
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  Really good protection comes from really good diversification.
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  Tell us what your idea of genuine protection looks like.
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  Well, first, we try to not look at a benchmark of an index, for example,
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  because that's really
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  just a scorecard of what that sector of the economy might be doing.
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  What we're really looking at is to look at something more based in the reality of
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  what a client needs.
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  So for that, we're typically looking at, first of all, inflation beating,
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  especially when we look in present terms, when we look long-term
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  towards retirement plans and saving for I don't know whether it's kids' education or
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  for future purchases like a home.
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  We are looking to kind of make maybe an inflation plus three or plus five and
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  really working with the type
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  of risk profile that is going to get them to where they need to be but not kind of
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  spook them from the risk that needs to be
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  taken to achieve those things.
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  So we're looking to use a nice balanced mix of sort of funds that will first
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  reduce the risk but also have the...
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  the opportunities within it to capture the growth that we would need to achieve those
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  goals.
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  So, we're looking at your income funds for sort of steady returns.
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  You're looking at balanced funds to move in and out of various market areas and
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  positions so that they can capture
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  market share, but also sort of risk protect during downturns.
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  And then we look at our more volatile equity funds, which can capture the most
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  growth if we use them properly and manage them during
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  downturns.
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  So what you're saying really is every client is different and therefore every
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  diversification structure must be different as well.
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  And that has to be tailored to the needs and the aspirations of the individual
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  client.
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  Absolutely.
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  I mean, for someone in their sort of 30s and 40s who are still accumulating their
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  wealth, the opportunity to
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  take on more risk over a longer period of time while the time is on your side is
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  more likely what a strategy will be in
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  that case for a client.
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  Whereas someone who's...
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  In their 60s and their 70s, you've moved into their living annuities or aren't
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  working anymore.
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  And their capital that they have accumulated is now their source of income.
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  We really do need to be more in a moderate and protective mindset for them and
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  helping them capture
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  income on an ongoing basis rather than trying to grow the capital.
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  We want to preserve it and deplete it as slowly as possible.
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  Have you had an example of a client that's come in that has an existing portfolio but
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  has heard about Brenta's Wealth, wants you to… sit down with them
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  and have a look at it.
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  And you have a look at it and it's completely inappropriate.
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  As I said earlier on, I'm not being unkind in the case of this example, but is it a
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  cluttered
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  portfolio you find?
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  I'd be cluttered other times.
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  It's just completely conflated the wrong direction.
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  I've had people come in with a living annuity that was purely in tech stocks, a
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  tech stock ETF, and I kind of
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  panicked because I saw obviously they're making.
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  20 to 25 percent returns but again with the the momentum trap you're thinking if
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  this gets one market
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  correction this could be going to like five percent in the next year while
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  they're drawing quite a large amount of income from it
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  so yes when we have clients like that that come in we do try to take a take a deep
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  breath and explain
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  why while the thinking is not incorrect the the way it plays out in the real world
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  is something we're more concerned about and protecting that
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  The value of their wealth while they're in a more risk-off period of their life term
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  is why we would make certain changes
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  or explain what different things we would do for them.
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  Interesting stuff, Lloyd.
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  Thank you very much for your time.
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  Lloyd Duren is from Brenthurst Wealth in Granger Bay, and that was It's My Money.
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  It's My Money was brought to you by Brenthurst Wealth, an award-winning
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  boutique wealth management company.