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BLUECHIPCOLUMNHow having

BLUECHIPCOLUMNHow having a bias affects yourpotential returns as an investorAs investment managers, we analyse the impact of investor behaviour on plausible outcomes.Florbela Yates, ManagingDirector, EquilibriumFlorbela Yates is the head ofEquilibrium in the MomentumMetropolitan group. Equilibriumis an independent discretionaryfund manager that partnerswith financial advisors to helpthem enable their adviceoutcomes. Equilibrium bringsbalance to an advice practiceby delivering services andinvestment solutions to helpclients achieve their definedinvestment goals.Abehaviour we see from investors ishaving a home-country bias, wherethey over-invest in local stocksrelative to the optimal portfolio.We see this for a couple of reasons, includingbarriers to foreign investments, risk-aversion andbehavioural factors.These behavioural factors include familiaritybias and availability bias.People who express familiarity bias tendto invest in the companies that they know.For example, they believe that because theyuse a specific brand, it must be popular, so theyare more likely to invest in the companies whosebrands they use.The second is availability bias: buying moreSouth African equities because they believethat due to living here, they have more influenceover how local companies perform.Then there are cultural biases and factorsthat often affect how they invest their money.Of course, the vehicle through which youinvest may also limit your ability to invest inother countries.Regardless of what the biases are or whythey exist, our challenge is to help people avoidbehavioural biases by putting together optimalportfolios with allocations to other countriesbesides their home country. When we constructportfolios, we look not only at the returnexpectations but also spend time understandingthe risks associated with certain countries aswell as how asset classes behave in variousmarket conditions. We then build robustand diversified portfolios that makeit easier for investors to stay invested.This requires a deep understandingof financial drivers, different asset classes,various investment styles, what risk means fordifferent investors and, yes, an understandingof what triggers certain behaviours.We recently analysed model portfoliosmanaged on behalf of South African investors.Of the 67 balanced model portfolios weexamined, just over 43% had no exposure outsideSouth Africa and only 10% had 45% or moreinvested outside South Africa. The difference inperformance between these portfolios rangedenormously, and without detailed informationabout all the underlying holdings, we canassume volatility will be vastly different withoutthe full benefits of geographical diversification.We have a team based in the UK that manageshard currency portfolios for South African and UKinvestors, and so I investigated whether there isany difference between the two ranges in termsof home-country bias. Those managed on behalfof largely South African investors have a moreneutral allocation to the MSCI World Index, whilethose managed on behalf of UK investors tend tohave a bias towards the UK. The models with a UKbias significantly underperformed those with amore neutral weighting over one year, three yearsand five years.When we look deeper, it’s not actuallyonly the allocation to US equities that drovethis, although this was a contributor overthe more recent period (our managers wereunderweight on the mega US tech stocksin both ranges). The biggest impact onportfolios was the diversification acrosscountries and the sectors available in differenteconomies that contributed significantly tothe differences.Lack of diversification and irrationalbiases affect returns and investors’ long-terminvestment amounts. We can’t prevent investorsfrom having biases. But we can spend moretime analysing their impact and makinginvestors aware of the dangers of biases. Thisallows our clients to make more informeddecisions. They will be better able to managethe risk/return trade-off, are more likely to stayinvested and ultimately more likely to reachtheir investment goals. To find out more about Equilibrium andhow we bring improved balance into yourfinancial advice practice, visit eqinvest.co.za.Equilibrium Investment Management (Pty) Ltd (Reg. No. 2007/018275/07) is an authorised financial services provider (FSP32726) and part of Momentum Group Limited, rated B-BBEE level 1.16 www.bluechipdigital.co.za

COLUMNBLUECHIPTrump 2.0A time to focus on what you can control.Rob Macdonald,Independent ConsultantRob Macdonald has held several seniorpositions in the investment industry.He is an independent consultant andcoach who also develops and facilitatestraining programmes in behaviouralcoaching and practice management.Before joining the financial servicesindustry, Macdonald was MBA directorat the UCT Graduate School ofBusiness. He is the author of the bookThe 7 Pillars of Financial Health and isco-author of Rethinking Leadership.Macdonald has a Master’s degree inManagement Studies from OxfordUniversity and is a CFP® Professional.In recent conversations financial plannershave expressed bemusement with globalevents thanks to Trump 2.0. One plannerexpressed frustration that Trump 2.0 iscausing lots of unnecessary work for clients.Another planner said that clients have askedfor communication about what was goingon, but he didn’t quite know what to say.Neither of these comments is a surprise, giventhe drama that seems to unfold daily on theback of Trump 2.0, and the unpredictablenature of this drama. One day tariffs are on,the next they’re off. Or are they? I doubt theman in question knows the answer. It’s notworth speculating about. But the first quarterof 2025 highlights that global events impactclient portfolios and client psyches. I guessfew people are not unsettled by the unhingedproclamations and actions emanating fromthe largest economy in the world. So how canwe prevent events like these from being anunnecessary distraction for both clients andfinancial planners alike?Perhaps the best way is to remind ourselves(and clients) of Stephen Covey’s Circle ofInfluence model. It has three concentriccircles with the outside circle labelled Circleof Concern. Herein lies conversations aboutTrump 2.0. We may enjoy having theseconversations, but nobody not even Trump2.0 has any idea what’s coming next, howthe global economy will be impacted orhow markets will react. You may still want tohave these conversations to give a client theopportunity to “offload”. But even this haslimited value because as a fan of reality TV,Trump 2.0 will ensure that for the next fouryears there will be no shortage of footageabout which your clients will want to “offload”.Who will forget the infamous Oval Officebullying episode with Ukrainian PresidentZelensky, during which Trump opined, “Thiswill make for great TV”? So, if there is little pointhaving a conversation about the leader of thefree world’s latest antic, what does one talk toclients about?Covey’s model suggests the onlyconversation that would be meaningful atthis time, is one that deals with what you andyour client have in your Circles of Control andInfluence. Neither of you have any controlor influence over global political events,economic policy decisions, investment marketmovements or unpredictable events that mayhappen in your client’s life. Any attempts atpredicting any of these events are a waste ofenergy. Again, you can have a conversationabout what you can’t control or influence,but what is the point? Rather, it would bemore meaningful to focus on what is in yourand your client’s control. Clients can adjusttheir spending habits, their savings rates andtheir plans about what they want from theirmoney and life. Financial planners don’t haveany control over any of those aspects of aclient’s world, but they can play a crucial rolein influencing the decisions clients make. Thisis the essence of financial planning, helpingclients make and implement decisions abouttheir life and money.As a financial planner, one thing you dohave control over is how you communicatewith clients, as well as the frequency andcontent. Research suggests that yourapproach to communication will have thegreatest influence on your client’s experienceof your advice, greater than your investmentor product choice recommendations. It isworth spending time on the activity youhave the greatest control over. The moreyou have planned your communication andimplemented it consistently, the more likelyyou will influence client behaviour. Focusingon your Circle of Control trumps gettingcaught up in your client’s Circle of Concern, nomatter what’s going on in the world or even ifyour clients do want to have a conversationabout Trump 2.0. www.bluechipdigital.co.za17