Should You Rebalance Your Portfolio Now?

PERSONAL FINANCE (Independent Newspapers), National Saturday, 4 October 2008, p. 3

If you have set up a balanced portfolio, with investments across a range of asset classes, the balance between the asset classes is likely to be off-kitter following the recent sharp falls in the prices of equities. Is now the time to rebalance by moving some money from, for example, cash into equities?

Andrew Bradley, the chief executive officer of acsis, and Paul Stewart, the managing director of the Plexus Group, both say you should be constantly rebalancing your portfolio to ensure that the asset allocation is suitable for you to meet your long-term objectives and matches your risk profile and investment horizon.

"This will significantly reduce your long-term risk and will provide you with greater certainty on your returns," Bradley says. Stewart says as equity values are currently down, you should consider rebalancing your portfolio now. He says you should maintain a diversified portfolio to minimise your risks and not base your asset allocation decisions solely on market fears and rumors. Stewart also says you should remember that equities remain the key to long-term growth.

Jeremy Gardiner, a director at Investec Asset Management, has a different view on rebalancing your portfolio. He says because the markets are currently extremely volatile and are expected to remain that way for a while, you shouldn't do any drastic rebalancing until things settle down. Selling equities after they have collapsed and buying after they have run are two of the most common mistakes made by investors, he warns. Denzil Burger, a senior portfolio manager at Old Mutual Investment Group of South Africa (Omigsa), says Omigsa encourages most investors to have an investment professional manage asset allocation changes for them by investing in diversified asset allocation portfolios.

Urvesh Desai, an assistant portfolio manager at Omigsa's macro strategy investments boutique, says you, as an average investor, should not attempt to time the markets.

If you invest in an actively managed portfolio or fund, the fund managers, who are experts with access to more and better information than that to which you have access, will be able to make informed and appropriate asset allocation decisions for you. Allan Gray does not make asset allocation calls, but follows a "bottom-up approach" for its asset allocation funds. This means that its fund managers look for assets that offer the best value on a three- to five-year horizon and buy them regardless of the asset class.

Johan de Lange, the managing director of Allan Gray Unit Trusts, says Allan Gray does not therefore rebalance its portfolios but is always on the lookout for opportunities to add value to its portfolios.

However, De Lange says he would caution you against 'trying this at home" as it requires in-depth analysis and stock-picking skills.

Currently, Allan Gray's Balanced Fund has an exposure of 61 percent to local equities and an exposure of 14.4 percent to foreign equities. - Laura du Preez