SIMON BROWN: I’m chatting with Francis Marais, product director at Morningstar Investment Management SA. Francis, I appreciate the time today. When markets get tough, which we certainly saw a lot of last year, particularly globally but locally as well, a lot of talk then turns to guaranteed products. We’re delved into some of the details of them, but they can have a space in a portfolio.
SIMON BROWN: That’s a great point. Rushing in because you’re scared of the market is truthfully not really a strategy, but there is perhaps a part of your portfolio where you need – as it says on the sticker – that guarantee, that removal of uncertainty, because markets are by their inherent nature uncertain.
Other ones I think are a bit more sort of opaque, and I would question the payoff profile and what you pay or give up for that – whether you are not able to also replicate that with a normal or traditional asset class at much lower fees. So as soon as you try and reduce the risk, you must also then accept perhaps a lower return, and that lower return could be in the form of either higher fees or an opportunity cost that you then pay for engaging or entering into a guaranteed product.
FRANCIS MARAIS: Yes it can, but it can also be an asset from a utility perspective. If we don’t turn [to] risk in isolation, maybe more from a utility perspective, it can add liquidity to your portfolio. So when you have unforeseen expenses it’s useful to have that liquidity in your portfolio, and obviously it also adds some optionality to your portfolio. That is, you’re able to take advantage of investment opportunities as they present themselves.
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