Risk Management

 

We believe that risk management is as important as stock selection. IPRO’s investment style – buying growth at a reasonable price or below intrinsic value – provides investors with an underlying margin of safety. Investing in companies with significant tangible assets, strong cash flows or high amounts of cash adds further downside protection.

Disciplined “sell” criteria

We utilize clearly defined “sell” criteria to realize profits and maintain our portfolio risk profile. On the upside, we generally sell a position when it reaches our valuation target. Conversely, a position is generally sold if there is a major disappointment or significant deterioration in any key performance measurement, especially if it is confirmed by both fundamental and technical analysis. An investment position may also be sold or reduced if a more attractive opportunity is identified.

Every month, IPRO Group’s Local Investment Committee meets and agrees on the fund’s asset allocation changes.

Furthermore and as part of our risk control process, corporate news such as dividend declarations, publications of results or corporate announcements are immediately analysed by the analysts and special investment committees take place if the template needs to be urgently amended.

Local Bonds and cash 

The landscape of the asset class

The local bond market is still at its very early stage of development. The investment universe consists of government bonds ranging from short maturity T-bills, to medium and long-term bonds. Added to these, there is a wide range of term deposits from commercial banks and leasing companies.

Our strategy and its rationale

We use a direct investment route. Given the rather illiquid local bond market on the long end of the yield curve especially, our strategy would be of a ‘buy and hold’ one rather than that of a trading one. We allocate the bond holding across the maturity spectrum, and the weightings will be on the relative attractiveness of the yields being offered.

To assist us in our decision, we use our in-house models for inflation and interest rate forecasting. Using these inputs we are able to re-calibrate the bond portion in the overall portfolio mainly so as to be able to generate the maximum possible return.

Our current strategy for investing in the local bond market would be to spread the allocation within the short-term to medium-term spectrum only. The main reason for this exercise is to allow us to re-allocate the bond proportion in the future at expected more attractive yields. This in turn is based on our forecast of an easing of the excess liquidity situation, when more attractive yields would be obtained, and which in turn would allow us to lock in longer-term bonds.

Strategic & Tactical decision process

All strategic and tactical decisions with regard to investments are taken by the investment committee through periodic investment committee meetings held separately for local and foreign investments. More important is the diversity of the skills and ideas available to discuss and arrive at the conclusion in each of those committees – there is a good blend of research, analysis, technical and managerial experience.