It's all about Collective Investment

Last year (2007) Housing Finance launched a 10-year fixed interest rate mortgage initially targeting investment groups wishing to put up houses either for owner occupation or speculative business.

Written by Eleanor Kigen
April 25, 2008: There is one advertisement I like on CNN. Although I cannot remember the exact words, I find the message powerful. It talks about the impact that a collective group of people can have on the world. They can change it. Alone, it is virtually impossible.

This rings true in the financial world as well. When people come together with different ideas and each with their small savings, they can create something great. Just this week I was reading a book called The Second Bounce of the Ball.

Among its many lessons is that if you want to grow, you need to build a network with whom you can be able to achieve a lot. Collective investment vehicles are a good way for investors to bring together their monies and be able to make bigger investments with much bigger returns.

Alone, each of the investors can be able to invest in a few shares of Kenya Airways, Kenya Commercial Bank, Athi River Mining and so on. But together, they can be able to take over a company, turn it around, make money and sell the investment at a profit.

But for such a venture to work, the people who come together have to have a common goal. They have to know where they are going. They have to believe in the vision. If you belong in an investment group, you have already started the journey.

Do you meet regularly? Do you have clearly defined goals? A clearly defined strategy? Do you have regular meetings? Do you have laid out procedures for making decisions? Do you follow your decisions through?

Do you have an eye for opportunity? Do you take calculated risks? There are clearly many things that have to be taken into account in order to guarantee success of your group.

There are also some other types of collective investments that do not require your exerted effort on a day to day basis.

Sometimes as an investor though, you are looking for investments that offer you optimum returns and diversification in a certain sector, or market capitalisations, or blue chip counters.

In more advanced markets, we have exchange traded funds which give you exposure to the type of counters that you want, be it financials, blue chip counters, large market capitaliasation companies, small capitalisation companies.

In the Johannesburg Stock Exchange (JSE), we have what is called the Satrix Securities which are listed collective investment schemes which can replicate the dividend and price performance of a particular index.

The returns that accrue to you are almost the same if you had directly purchased each of the individual securities on the JSE index. On your own, trying to get exposure to the index is not only time consuming, it is costly.

The advantages of purchasing the Satrix Securities include; lower transaction costs, since the shares on the index do not change frequently it is mostly a buy and hold strategy.

Secondly, a single transactions gives you exposure to a wide range of securities and the selling price moves according to the Net Asset Value. At any time you can know how much you are worth. Some of the Satrix funds include; the Satrix 40 which includes the top 40 companies on the JSE, Top 25 listed industrial companies index, top 15 financial companies index, if you are interested in dividends, you can invest in the Satrix Dividend Plus.

The biggest disadvantage of investing in exchange traded funds is that you can never beat the market. If the market is on an upward rise, you can only make market gains and your losses will be limited to the market losses.

Ultimately, it depends on you, the investor – on your risk appetite and the kind of returns you are looking for. There are many opportunities for collective investments even including gold! If you are looking for above market gains, exchange traded funds might not be the way for you.