Investment diversification: Smart means to diversify your assets

investment diversification

Diversification can be considered as a major important aspect of personal finance and investment. Even though it has received some criticisms from a few noted investors and financial analysts, the positive outcomes of it is still emphasised globally. This has therefore drawn the interest of many personal finance writers and bloggers to include diversification in their topics list. Diversification has similarly been mentioned in a number of write-ups on In the post about Treasury bill vs. mutual fund, the importance of diversification and how mutual funds offer diversification opportunity was highlighted. The significance of diversification has also been covered in the following posts:

4 DUMB financial decisions I had made in the past

What is the ‘best’ investment product in Ghana?

Wealth tracking: Manage your wealth with Spf wealthTrack

Diversification approach

With the availability of abundant information and varying perceptions, following an effective and practical diversification approach can be challenging. Nevertheless, all diversification methods intend to reduce investment risks and volatilities by investing in a variety of assets classes or categories. At least, reducing investment risk, to some extent, can give you some peace of mind

Determining your assets mix

The main concept behind assets mix is that the growth of different assets categories can progress independently in different directions. For example, the growth of stocks is usually based on the prospects of companies. On the other hand, Treasury bills and bonds are mostly affected by prevailing interest rates. In a way, you hold different kinds of assets whose values neither grow nor fall at the same time. Thus, when stocks perform poorly, one may be cushioned by Treasury bills or bonds. The list of assets categories can be many. The common ones are stocks, mutual funds (equity, balanced, money market), Treasury bills, fixed deposits, bonds, savings accounts, cash, commodities, real estates (properties) and businesses.

 What is a good mix?

Arguably, there is no ideal formula when it comes to assets mix in diversification. How one chooses and mixes his assets ultimately depends on factors such as his financial goal, financial situation, age and level of risk he can cope with. Your financial goal could be building long-term wealth or an alternate retirement fund. With such a goal, your assets mix would be inclined towards long-term assets such as stocks and equity [mutual] funds. In other words, you would require an asset mix made up of a high percentage of long-term investment products.  On the other hand, if your goal is to create a source of regular income for the immediate to medium term, you may find it useful to have a mix comprising greater percentage of fixed income products. While focusing on your financial goals, you also consider how much risk you’re prepared to take to achieve those goals. For instance, if you’re the type who easily panics after losing some investments, then you may not be in the right position to allocate greater portion of your assets to risky investment products.

It is also noteworthy to consider mixing assets within the same category. That is, you don’t only diversify across different assets categories but also within the same category. In doing so, you diversify within stocks category by investing in different stocks on the market. This must also cover different industrial sectors such as banking stocks, manufacturing stocks and insurance stocks. Considering foreign stocks, beyond just the Ghana Stock Exchange could even be more helpful. This is because different markets don’t normally grow in the same direction. When Ghana Stock Exchange performs poorly, Johannesburg stock market may be performing better. The easiest way to invest in foreign stocks is to purchase equity funds that invest beyond the GSE. A typical example is Databank Epack fund as well as SEM All-Africa fund.

In addition, you diversify within fixed income securities by purchasing T-bills, bonds and probably fixed deposits. Similarly, you diversify within mutual funds by investing in equity funds, balanced funds and money market funds. You may even consider other alternative investments such as gold and antiques if you have the means.

Rebalancing your assets mix

As your assets keep growing, the original mix may become distorted due to the different growth rates of the different assets categories. Furthermore, your investment goal may change at any point in time. Thus, it would be necessary to regularly monitor and rebalance your assets mix. Stay abreast with current market updates and make use of the information to help rebalance your assets. The use of Spf wealthTrack can also guide you to know which assets categories require adjustments.

Avoiding over diversification

As earlier stated, a few seasoned investors have had their criticisms on diversification. For example, Warren Buffett, an American business magnate and investor, made a remark concerning people’s obsession about investment diversification. He argued:

Wide diversification is only required when investors do not understand what they are doing.”

Deducing from the above statement, Warren Buffett does not entirely consider diversification as a bad practice. Rather, his concern centres on over diversification and the notion that diversification is the ‘Messiah’ of investment growth. Yes, too much of everything can be bad too. In fact, over diversification can even hold you back from potential earnings. For instance, anyone who might be precisely utilising the GSE Composite Index (used to track all stocks on the exchange) for his diversification approach may not be making more returns as the one who rather focus on a few profitable stocks on the market. This is because even though the stock market records negative returns in some financial years, a few individual stocks make huge gains in the same financial years.

It may similarly be needless to invest in numerous mutual funds in the name of diversification. Don’t forget that the investment strategies of most collective investment schemes in Ghana follow similar patterns. At least, a look at our previous post on foundational stocks can give you a clue. Selecting a few good schemes based on past fund performance and reputation of fund managers can be a good way to go. Essentially, get to know your mutual funds so as to have a vivid picture of what they invest in. In that way, you avoid stashing your money in repeated portfolios.

To conclude, diversification of investment can be very useful in reducing one’s exposure to market volatilities and other investment risks. However, it must not be like spreading your tentacles everywhere with no focus. The main point is to focus on a few and manageable number of assets in different categories while considering your financial goals.

Rates on mutual funds decline due to market losses

mutual funds decline

The poor performance of the stock market seems to be having negative effects on the returns of mutual funds. Until the 6th of September 2017, major mutual funds in the country had been riding on the Ghana Stock Exchange for their continuous gains. This increasing trend ceased to continue following the recent drop in share prices on the stock market. The year-to-date return of the Ghana Stock Exchange, which peaked at 45.53% on 6th September 2017, continuously dropped to 35.67 as of 22nd September 2017. Due to this downward trend, rates on mutual funds decline in response. Major equity and balanced funds have since registered some losses.

The year-to-date return of Databank Epack, for example, has dropped from 35.32% (recorded on 6th September 2017) to 29.37% as of 22nd September 2017. In the same period, Databank’s Bfund dropped from 31.50% to 28.37%. Similarly, SAS Fortune fund (an equity fund managed by Strategic African Securities) declined from 41.20% as of 5th September 2017 to 37.15% on 22nd September 2017.

Other investment funds experiencing decline in their rates include FirstBanc Heritage fund, HFC Equity Trust and Gold Fund Unit Trust. The rate on FirstBanc Heritage fund has slightly declined from 34.89% as of 4th September 2017 to 32.68% on the 22nd of September 2017. Rate on HFC Equity Trust also declined from 26.89% as of 7th September 2017 to 23.72% on 22nd September 2017. Finally, rate on Gold Fund Unit Trust dropped from 34.56% (recorded on 4th September 2017) to 33.60% as of 20th September 2017.

Ghana Stock Exchange suspends trading of CPC shares

registrars of ghana stock exchange

The Ghana Stock Exchange (GSE) has suspended trading of Cocoa Processing Company Limited (CPC) shares with effect from August 30, 2017.

According to the GSE, CPC has failed to meet its continuing listing obligations in spite of several promptings. The obligations are failure to submit financial reports and failure to conduct Annual General Meeting.

The suspension of trading in CPC will be in force until September 13, 2017, which is the deadline for the company to rectify the anomalies. Failure to do so will attract further sanctions as per the GSE Listing Rules.

Source: Ghana Stock Exchange

Could it be good time now to buy EGL shares?

EGL shares

Very recently, shareholders of Enterprise Group Limited (EGL), during an annual general meeting held on 8th August 2017, approved a proposal by its board of directors to issue rights worth about $50 million. The announcement of the rights offer seems to have triggered investors’ interest in EGL shares, reflecting on its performance on the stock market. In fact, the share price of EGL has increased from GH¢2.68 on 8th August 2017 to GH¢3.65/share on 21st August 2017, translating into 36.19% in the two-week period.

As a gentle reminder, rights are additional shares issued by companies to raise money from existing shareholders. One peculiar trait about rights issue is the discounted price at which shareholders pay for the shares. That is to say, shareholders who qualify for rights issue usually pay below the prevailing market price to acquire the additional shares (rights). For example, if the prevailing price of a company’s share on the stock market is GH¢3.5/share, the company may decide to issue rights to existing shareholders at a price of GH¢3/share. Thus, the more rights a shareholder acquires, the more he benefits from the discounted price.

Now, back to the EGL rights offer. Interestingly, the proposed price for the EGL rights issue is expected to be higher than the trading price on the Ghana Stock Exchange. To be specific, the price for the rights offer is to be fixed at GH¢6 per share, far higher than the current trading price of GH¢3.65/share (as of 21st August 2017). This therefore appears to contradict the usual manner of issuing rights whereby shareholders buy at discounted prices.

I believe by now you may already be asking why you should even buy at such an exorbitant price in the first place. However, before you begin to lose hope, kindly be patient for the little explanation below.

According to the board chairman of Enterprise Group, Trevor Trefgarne, the GH¢6 per share is the effective value of EGL as established by the transaction. This price, according to him, was arrived at based on advice from Boulders Advisors Limited, after a fair valuation of the company’s shares. Further explanation was that the market price of EGL on the GSE would by default go up to GH¢6 per share after the rights issue. This follows a resolution passed at the meeting to increase the company’s authorised shares from the current 200,000,000 to 1,000,000,000 in line with the proposed rights issue as per the regulations governing the GSE and company’s Act. Thus, even though the price of the rights offer is expected to be pegged higher than the market price, it does not necessarily take away the usual benefits associated with rights issue.

Benefiting from EGL shares as an investor

Since the market price of EGL is currently GH¢3.65 per share (as of 21st August 2017), it means that EGL is being traded at GH¢2.35 less than its intrinsic value of GH¢6 per share. In other words, EGL shares are being traded at a discount of about 39.17% (as of 21st August 2017). This may sound good to investors who wish to take advantage of the situation. For example, an investor who had purchased EGL shares on 21st August 2017 (at GH¢3.65/share) expects to gain 39.17% return in about three months’ time, during which the rights issue process is estimated to be completed. Remember that EGL had recently been proposed (by as one of the foundational stocks on the stock market. Hence, buying a handful of EGL shares can be worth it.

Could these listed companies be classified as foundational stocks?

If you have keenly been following the series on ‘get to know your mutual funds’, you would realise that in each post, the top 5 equity holdings of the fund’s portfolio are highlighted. Interestingly, of the few mutual funds covered so far, there appears to be much similarity in their various top 5 equity holdings. In other words, most of the mutual funds list similar companies as their top 5 equities. Out of curiosity, other mutual funds were also looked into to find out if the similarity trend would remain unchanged. To achieve this, some of the most recent annual reports (where available) of major mutual funds were examined. In all, 19 annual reports were studied, which covered 7 different mutual funds (both equity and balanced funds). The main purpose was to figure out if the topmost equities repeating more frequently in the various mutual funds could be considered as foundational stocks. In doing so, these stocks could become a sort of principal, key or foremost stock picks for investment portfolios. Many would agree, to some extent, that mutual funds are managed professionally by fund managers. Hence, following in the footsteps of these fund managers by replicating some of their top stock picks can be useful.

Why foundational stocks?

Investing in stocks is one of the most proven means to build wealth. However, picking the right stocks from the market can be challenging, especially for the novice investor. One requires a good portfolio mix comprising the right stocks in order to be successful. Just like building a house requires strong foundation to ensure its robustness, building wealth with stocks may equally require careful selection of stocks, in particular, starting with good foundational stocks. A poor foundation can cause your building to tremble or worse, topple down, so do poor foundational stocks can cause to your investment portfolio. Arguably, maintaining strong foundational stocks in your investment portfolio comes with some benefits such as good investment returns. Moreover, strong foundational stocks can somehow protect an investor from the impacts of market falls.

Summary procedure for selecting foundational stocks

As stated earlier, the top 5 equity holdings of seven (7) different mutual funds were compared. The mutual funds were Databank Epack, Databank Bfund, SAS Fortune Fund, HFC Equity trust, HFC Future Plan, CDH Balanced Fund and FirstBanc Heritage Fund. To ensure the use of up-to-date data for decision making, data covering the latest three years (2016, 2015 and 2014) were utilised. The topmost equities frequently appearing in the various mutual funds were preliminary grouped, followed by brief background study of their performances. The table below provides comparison between the top 5 equity holdings of the seven different mutual funds. For detailed (raw) data of the top equity holdings compilation, click on this link: Top five equity holdings of selected mutual funds.


Table 1: Comparison of top 5 equity holdings of selected mutual funds


Mutual fund

Top 5 Ghanaian equity holdings




6 *CDH Balanced Fund CAL, FML, GCB CAL, FML, GCB Fund was not yet established
7 FirstBanC Heritage Fund Annual report not available EGL, EGH, GCB, SCB, SOGEGH EGL, SOGEGH, GCB, TOTAL, GOIL

*CDH invested in only three (3) stocks.

Observations and analysis

From the table above, GCB bank Ltd. (GCB) occurs 18 times out of the 19 studied annual reports. This is followed by Standard Chartered Bank (GH) Ltd. (SCB) which can be counted 13 times out of the 19 annual reports. The rest, in descending order, are Fan Milk Limited (FML), 12 times; Enterprise Group Limited (EGL), 12 times; Ghana Oil Company Limited (GOIL), 10 times; Ecobank Ghana Limited (EGH), 8 times; Total Petroleum Ghana Limited (TOTAL), 7 times; Societe Generale Ghana Limited (SOGEGH), 3 times. CAL Bank Limited (CAL), 3 times; Ecobank Transnational Incorporated (ETI), 2 times; HFC Bank (Ghana) Limited (HFC), 2 times; Mega African Capital Limited (MAC), once.

In total, 12 different stocks could be found in the top five equity holdings of the mutual funds. However, considering the comparatively low occurrences of SOGEGH, CAL, ETI, HFC and MAC, they were delisted, leaving the rest of the seven stocks as the preliminary group for further studies.


Table 2: Preliminary group of foundational stocks

Stock Number of occurrences in top 5 holdings
GCB 18
SCB 13
FML 12
EGL 12

To study further on the above stocks, their historical performance trends were looked into. Simply, two main performance indices were examined- annual returns and dividend yields. It must be noted that stocks with fairly good returns can be indication of investors’ confidence in the companies. Furthermore, while dividend pay-outs provide regular income source, they also signal financial stability of companies. The latest 5-year annual returns and dividend yields of the stocks can be seen in the tables below.

Table 3: Latest 5-year performance results

Company Trading symbol Return, %
2012 2013 2014 2015 2016  Average
1 Enterprise Group Limited EGL 26.3 291.7 -6.9 37.1 0 69.6
2 Fan Milk Limited FML 50.4 86.5 -20.7 40 51.7 41.6
3 Ghana Oil Company Limited GOIL 93.8 43.5 19.1 33.3 -21.4 33.7
4 GCB Bank Limited GCB 13.5 131 13.4 -34.9 -6.1 23.4
5 Ecobank Ghana Limited EGH -6.3 87 35.5 7.6 -8.6 20
6 Standard Chartered Bank (GH) Ltd. SCB -74.7 29.9 36.2 -19.9 -25.2 -10.7
7 Total Petroleum Ghana Limited TOTAL 18.5 N/A 20.6 -16.4 -61.2 -9.6
GSE all-share-index 23.81 78.81 5.4 -11.77 -15.33 16.18


Table 4: Latest 5-year dividend yield

Company Trading symbol Dividend yield, %
2012 2013 2014 2015 2016 Average
1 Enterprise Group Limited EGL 3.33 0.00 1.43 1.04 2.1 1.58
2 Fan Milk Limited FML 1.13 0.00 1.71 0.00 1.4 0.85
3 Ghana Oil Company Limited GOIL 2.26 1.61 1.52 0.00 1.8 1.44
4 GCB Bank Limited GCB 3.33 2.94 3.96 8.44 8.7 5.47
5 Ecobank Ghana Limited EGH 8 5.18 5.66 11.27 12 8.42
6 Standard Chartered Bank (GH) Ltd. SCB 26.52 3.14 5.65 0.00 2.3 7.52
7 Total Petroleum Ghana Limited TOTAL 2.81 13.72 1.61 2.25 2.3 4.54

In terms of annual performance, with the exception of Standard Chartered Bank (SCB) and Total Petroleum Ghana Ltd. (TOTAL), the rest of the stocks show impressive positive results. Moreover, their average returns exceed that of the GSE (all-share index) in the same period. Enterprise group limited (EGL) beats the GSE index in 4 out of 5 years. Fan Milk and GCB similarly perform better than the market index in 4 out of 5 years while Ecobank and GOIL both exceed the index in 3 out of 5 years.

For dividend yields, Ecobank Ghana and Standard Chartered Bank lead with impressive average yields of 8.42% and 7.52% respectively.

It may also interest you that five of these stocks had even been commended in an earlier article recently. In the article by Kofi Busia Kyei (a financial analyst), EGL, EGH, FML, GOIL, and GCB were highlighted together with UNIL and BOPP as the few listed stocks that had offered great returns to investors in the past 10 years (Refer to the chart below).

foundational stocks _performance
Figure 1: 10-year return of selected stocks on the GSE Credit: Kofi Busia Kyei (a financial analyst)

Even though the performance trend of SCB doesn’t look so good, the high extent of its occurrence in the top five holdings of the various mutual funds may be due to positive future projections. The fund managers may have realised from their analysis, good earning or growth expectations of SCB, thus chasing its shares. Don’t forget that SCB is one of the few stocks that have recorded impressive returns in the current year so far. In fact, since the beginning of the year, its share price has appreciated by 115.52% as of 8th August 2017. Hence, considering it in our foundational stocks can be worth it. Unfortunately, because of the comparative low performance of TOTAL, in addition to its least number of occurrences in the top five holdings of the funds, delisting it from the group may be helpful for now. As a result, GCB, SCB, FML, EGL, GOIL and EGH can be finally listed as our proposed foundational stocks- six foundational stocks made up of three banking stocks, one insurance stock, one manufacturing stock and one petroleum stock (see Figure 2 below).

Foundational stocks
Figure 2: Proposed foundational stocks comprising six listed companies


The similarities between top 5 equity holdings of various mutual funds gave rise to this write-up. Through comparison and further background studies, six listed companies have been proposed as foundational stocks. These can be useful to investors in building their stock portfolios.

If you’re a new investor deciding on buying stocks from the exchange, you can think of starting with at least, one of these companies. Furthermore, investors who are already trading in stocks may also consider rebalancing their existing portfolio and perhaps buy more of these particular stocks.

Finally, if you’re yet to own shares of these stocks, my personal advice is to begin moderately with the ones that have already attained high appreciation in their share prices. For instance, the year-to-date returns of GOIL and SCB are currently 108.18% and 115.52% respectively, as of 8th August 2017. Even though they still have the potential to continue with their gains, the potential to fall is also inevitable due to the high prices already achieved.