Latest / Strictly Business / It's My Money with Ruan Breed

Transcript

It's My Money with Ruan Breed · Strictly Business

• 0:00
  You're listening to Strictly Business Podcast with Lindsay Williams.
• 0:05
  This edition of It's My Money is brought to you by Brenthurst Wealth, your partner
• 0:10
  for global wealth creation.
• 0:12
  Welcome to It's My Money.
• 0:14
  It's My Money is brought to you by Brenthurst Wealth, South Africa's
• 0:17
  multi-award winning boutique wealth manager.
• 0:19
  I received a piece from the desk of Ruan Brid from Brenthurst in Stellenbosch and
• 0:24
  it says the following,
• 0:26
  or the headline does anyway, Are benchmarks still relevant?
• 0:28
  When I think of benchmarks, I think of things like the FTSE 100 in London.
• 0:32
  I think of the JSC.
• 0:33
  I think of the NASDAQ.
• 0:34
  And if you look at the NASDAQ, for example, last year, it had a really,
• 0:38
  really good year.
• 0:40
  And it's had a terrific 2026 as well.
• 0:41
  But is that representative of the whole of the NASDAQ?
• 0:45
  Or is it because of a few stocks?
• 0:48
  In other words, a few concentrations of stocks?
• 0:52
  And Ruan, I think that's why you wrote this article.
• 0:54
  because...
• 0:55
  Benchmarks can occasionally become a bit confusing, even misleading.
• 0:59
  Yes, thank you, Lindsay.
• 1:00
  That's 100% right.
• 1:02
  I think over the last few years to a decade or more,
• 1:06
  passive investing has become the talk of the town and something that everybody's
• 1:12
  run after.
• 1:14
  And obviously, for good reason,
• 1:16
  there's a lot of points to be made for passive investing as opposed to active
• 1:21
  managers.
• 1:23
  I do think there's also a few caveats to be aware of,
• 1:25
  especially when it comes to market flows and momentum and those kind of things,
• 1:29
  which a lot of people seem to be unaware of and that can have a major impact
• 1:37
  on market returns and portfolio drawdowns as well.
• 1:41
  So I think it's more than meets the eye than just cheaper alternatives comparing
• 1:47
  passives to actives and chasing
• 1:49
  the cheaper solution.
• 1:49
  I don't think...
• 1:50
  cheaper is always better, as they say.
• 1:53
  You talk about the concentration problem, which is what I was talking about in my
• 1:57
  introduction.
• 1:59
  It really has become quite rarefied in recent months.
• 2:01
  And indeed, as I said, post-Liberation Day, which I think was April last year, it
• 2:08
  has become a problem.
• 2:10
  It's a problem for portfolio managers.
• 2:10
  You work with portfolio managers at Brenthurst all the time.
• 2:14
  And people couldn't, as you say in your article, get hired and fired.
• 2:18
  basis their performance versus a benchmark so it's terribly important yes that's
• 2:24
  right lindsay
• 2:26
  100 percent um you know and i think benchmarks have also become a you know
• 2:31
  like i say the
• 2:33
  norm and that's that's sort
• 2:34
  of the the the golden line where we're set and active managers are or hide and fight
• 2:41
  against them.
• 2:43
  I would say the important thing to consider is that you actually do not
• 2:48
  necessarily in some cases
• 2:50
  want to perform in line or I would say above the benchmark because that means
• 2:56
  normally the benchmarks are
• 2:58
  some of the major indexes in the world investment spectrum.
• 3:01
  But if you measure your own personal portfolio,
• 3:05
  which is supposed to be diversified in a very specific way, and you measure the...
• 3:11
  the performance of that portfolio against the JSE or the NASDAQ or the S&P 500,
• 3:16
  and you start to throw your toys out of the cot as soon as you start to lag those
• 3:22
  indexes.
• 3:23
  You tend to think something is wrong, which in fact the opposite might actually
• 3:27
  be true.
• 3:29
  Because if you tend to just track the benchmark or want to track the benchmark
• 3:32
  in your own portfolio,
• 3:34
  then you might as well then just buy the index in cheaper funds or alternatives.
• 3:38
  but I think the...
• 3:41
  I think the secret recipe lies exactly in that,
• 3:43
  that a well-diversified portfolio might actually not track a certain benchmark or
• 3:50
  more specifically an index.
• 3:52
  And I think that's actually the whole point.
• 3:53
  Yeah, that is the whole point.
• 3:55
  And when you look at passive investing, which has grown so much over the years
• 4:01
  since we've been speaking, Ruan,
• 4:03
  the fact is that if a stock like NVIDIA goes up,
• 4:06
  then passive investment flows.
• 4:09
  have to follow it and therefore it exacerbates the move upwards and vice
• 4:16
  versa when it comes down,
• 4:18
  hence the sort of volatility that wouldn't be the case maybe 20, 30 years ago.
• 4:23
  What does it mean for portfolio management and therefore what does it mean for
• 4:28
  someone like yourself,
• 4:30
  a financial advisor at Brenthurst Wealth?
• 4:32
  Yeah, I think there's a couple of important points to that, Lindsay, which I
• 4:37
  also pointed out in the article.
• 4:39
  And I think, for one, the performance evaluation is a bit more nuanced.
• 4:42
  So it becomes increasingly more difficult to judge active managers against
• 4:48
  concentrated indexes.
• 4:50
  Because, like I mentioned,
• 4:52
  a well-diversified portfolio will not be overly concentrated in certain aspects of
• 4:56
  the
• 4:57
  market.
• 4:57
  I think another point is that risk needs to be measured.
• 5:02
  Very specifically, investors benchmark solely to the JSE top
• 5:07
  40s, if they realize it or not,
• 5:11
  accepting that close to a quarter of their local equity risk sits over in one or
• 5:17
  similar exposure.
• 5:19
  And that's a conversation that you need to have before the next drawdown,
• 5:23
  because if there's a drawdown in a certain area of the market, that will take the
• 5:28
  whole portfolio down with it.
• 5:30
  So I think it comes down to...
• 5:32
  aligning your goals with what you want to do with your portfolio more than just
• 5:37
  ranking your portfolio
• 5:39
  relative to a benchmark or some ETF or some global index.
• 5:43
  And you've got to determine why do you build your portfolio the way you did and
• 5:50
  what's the objectives you want to meet
• 5:52
  at the end of the day.
• 5:54
  Do you want to track a benchmark or index or do you want to have proper, healthy,
• 5:56
  risk-adjusted returns and be… and be able to have some downside protection when the
• 6:03
  markets do go down,
• 6:05
  because that will happen and it will happen again in the future.
• 6:07
  There are some people, of course, some cynics that would say, a typical
• 6:13
  conversation might be, I'm a passive investor,
• 6:15
  and look at my returns over the last six months.
• 6:17
  You're an active investor and look at yours.
• 6:19
  You've got a diversified portfolio.
• 6:21
  I'm just going for the indices and I'm doing better.
• 6:24
  But of course, that's not always the case, is it?
• 6:26
  I mean, diversification at the end of the day over the long term surely beats just
• 6:33
  going for benchmarks, I would have thought.
• 6:35
  No, 100%.
• 6:36
  At least that's my humble opinion, Lindsay.
• 6:39
  And I think that's exactly what I was referring to earlier,
• 6:42
  is that if you're really happy to sit on your hands and wait and you've got a lot
• 6:49
  of cash to
• 6:51
  allocate to the markets, then it all depends on the scenario.
• 6:52
  Then a simple index fund might work for you.
• 6:55
  if you do have cash to throw at the market when there's a drawdown.
• 6:59
  But most investors we find for practical purposes are already fully invested,
• 7:06
  meaning that all their disposable cash on a monthly basis or total basis is already
• 7:12
  invested in the market,
• 7:14
  meaning you're really going to have that important drawdown protection because you
• 7:20
  don't really have, most investors are not cash flush.
• 7:22
  to be able to throw more dry powder at the market when there is a drawdown.
• 7:25
  And that's where the diversification factor comes in,
• 7:28
  is to have that downside protection in place so that if the market or the index
• 7:34
  you're trying to track
• 7:36
  comes down with 25%, 30%, which is quite normal,
• 7:39
  your portfolio is well protected against that and might only incur a drawdown, half
• 7:46
  of that, or whatever the case may be.
• 7:48
  Especially, I think it becomes more...
• 7:49
  important in later stages in life where investors start to draw income from their
• 7:55
  portfolios.
• 7:57
  They have really specific mandates in place to determine where the income is
• 8:02
  derived from and what part of the portfolio
• 8:04
  is aligned to grow over the medium to longer term.
• 8:07
  I like your final paragraph, or rather your final section of your article.
• 8:11
  It says, so are benchmarks still relevant?
• 8:13
  And then you say, yes, but in a narrower role than the industry often assigns them.
• 8:19
  And you go on to say a benchmark is a useful reference point, but it's a poor
• 8:24
  proxy for the economy.
• 8:26
  I can imagine Donald Trump, for example, standing up and saying, look at this
• 8:29
  fantastic economy.
• 8:31
  Look at the record highs we're continuing to get on the major indices.
• 8:34
  But then if you were going down Main Street in the United States of America and
• 8:39
  you interviewed someone and says,
• 8:41
  this is what the president has just said.
• 8:42
  And that person might say.
• 8:44
  but I'm poorer than I was a year ago.
• 8:46
  That is the sort of argument.
• 8:48
  Is that what you're trying to get across here?
• 8:50
  That yes, they're useful, but not as useful as people think.
• 8:53
  A hundred percent, Lindsay.
• 8:55
  And I think that's one of the most important points that you just raised.
• 8:58
  And I think there's a very important clarification to be made there is that the
• 9:05
  market is not
• 9:07
  the economy.
• 9:09
  And so the benchmark or the index doesn't really reflect what's actually going on in
• 9:13
  the economy.
• 9:13
  Yes, that obviously links to both of them, but more importantly is that what's going
• 9:19
  on on the ground level in terms of job
• 9:21
  losses or inflation is not necessarily what's
• 9:22
  always directly reflected in the stock market or in the global indices.
• 9:27
  And I think that's where it's really important to have that right
• 9:33
  diversification because it's fun stage.
• 9:35
  The market will reflect what's going on in the economy,
• 9:36
  and then you might be in for a bit of a tough time if your sole objective is to
• 9:43
  just try
• 9:45
  and track the index or the benchmark.
• 9:47
  Okay, so I'm a client of yours, and I phone you up and say, okay, Ruan, I
• 9:51
  haven't spoken to you for a couple of months.
• 9:53
  Are we beating the index?
• 9:55
  What would you say back to me?
• 9:57
  Yeah, I think it's, like I said, I think it's a pretty simple conversation to be
• 9:58
  had.
• 9:58
  I think it comes down to...
• 10:00
  revisit the reason of the portfolio allocation, what was the objectives at the
• 10:06
  onset of the portfolio,
• 10:08
  how things changed in the markets and also in terms of the client's personal affairs
• 10:14
  and are those still
• 10:16
  aligned?
• 10:18
  Does the portfolio allocation or asset allocation still speak towards the
• 10:21
  client's objectives and income needs and capital
• 10:23
  protection needs?
• 10:25
  And if that is the case, then I don't think there's really too much to fiddle
• 10:28
  with because
• 10:30
  you could be moving into a simple index which might coincidentally have done well
• 10:35
  because of one or two factors
• 10:37
  and you incur concentration risk and somehow the index might turn negative and
• 10:43
  you might have lost
• 10:45
  a healthy amount of money.
• 10:46
  So I think it really, like I say, comes down to the conversation must be,
• 10:50
  does the portfolio that's constructed still speak to the client's needs and
• 10:56
  objectives?
• 10:56
  And if that's the case, I don't think there's too much room for making changes.
• 11:02
  Obviously, one has to be cost cognizant.
• 11:06
  I'm not saying you should disregard all costs and fees.
• 11:10
  Obviously, there is room for improvement,
• 11:12
  but I do think that can be still achieved whilst protecting the client's asset
• 11:19
  against just trying
• 11:21
  to beat the index.
• 11:23
  Ruan, great chat.
• 11:25
  Thank you very much for your time.
• 11:27
  Ruan Brij is a financial advisor at Brenthurst Wealth in Stellenbosch in the
• 11:28
  Western Cape.
• 11:30
  And that was It's My Money.
• 11:32
  It's My Money was brought to you by Brenthurst Wealth, an award-winning
• 11:34
  boutique wealth management company.