In search of returns…
Over the past few years, it has become increasingly more difficult to find funds that are providing meaningful returns in South Africa.
We have highlighted some of the returns received on investments in South Africa for the past year. The figures represent the average of all the funds in their sectors.
[Figures supplied by Morningstar from 1st October 2019 to 30th September 2020.]
- South African Equity Funds: -2.87%
- South African Balanced Fund [high equity sector]: 1.85%
- South African Stable Funds [low equity sector]: 2.83%
- South African Income Funds: 5.25%
In contrast, the returns in offshore funds have been much better:
- Global Balanced Funds [High equity sector]: 14.91%
- Global Income Funds: 2.06%
We do not
anticipate much growth in the South African markets and believe that long term
investors should be considering increasing their offshore investments!
We asked a
few fund managers to give us their thoughts on offshore investing:
Coronation Fund Managers
“For long-term investors, we consistently highlight the
benefits of having appropriate levels of international exposure through the
investment cycle. While it may be tempting to increase or decrease your
international exposure for temporary reasons (such as current sentiment,
specific currency expectations or recent returns), having exposure to foreign
asset classes is not about the timing. Instead, it is an allocation that should
be made with strategic reasons in mind, such as:
- optimising your portfolio – by allocating money
internationally, you reduce the level of risk associated with achieving a
specific rate of expected return
- accessing opportunities outside of our
local investment universe – investors who restrict their universe to
domestic assets not only miss out on opportunities in industries that are
hardly present in the local market (e.g. information technology, biotechnology,
electronics, pharmaceuticals) but also on a much wider opportunity set within
those industries while gaining access to a more diverse opportunity set
- your future shopping basket plays a key role –
many items in a consumer’s shopping basket (from fuel to food to healthcare)
are largely priced in foreign currencies as the inputs are either commodities
(with prices struck in global markets), or heavily reliant on imported content.
Having adequate international exposure acts as a hedge against the long-term
change in prices
- matching future liabilities in hard currency –
this may include expenses such as overseas travel (for leisure purposes or
visiting family members living abroad) or business opportunities, investing for
a next generation’s education, or emigration.”
Duggan
Matthews, Chief Investment officer, Marriott Income Specialists
While the global economic recovery is likely to be slow, the
first world is set to recover faster than emerging economies, as they have more
resources at their disposal to deal with the current crisis.
We’ve found that high-quality, multinational companies
listed on first world exchanges – those offering timeless products and brands –
have been able to increase their dividends, even during the COVID-19 crisis. In
addition, companies of this nature are currently offering very good value as
the differential between their current dividend yields and the 10-year US
Government Bond yield is the widest it has been in over 30 years. In an
environment characterised by historically low interest rates, companies that
are able to grow their earnings, and reliably return money to shareholders in the
form of dividends, are a highly attractive proposition.
Ninety
One
“An
offshore investment gives you access to opportunities across different
countries, industries, companies and currencies, exposing your portfolio to
more possibilities while diversifying your risk. So, while you enjoy life in
the country you love, your investment could be discovering a world of
investment opportunity.
Benefits of
Offshore Investing:
- More
investment opportunities:
- Local
investors are limited to a smaller opportunity set as SA makes up less than 1%
of world GDP.
- When
you diversify internationally, you get access to a much wider range of
investment opportunities to grow our money across countries, companies and
currencies.
- Diversifying
Risk
- There
is a high correlation between emerging markets, so by going offshore it allows
clients to properly invest into developed markets.
- Local
investors not only carry the SA specific political risks, but also the risk of
being an emerging market.
- An
emerging market is at the peril of what foreigners think of emerging markets,
and what are other emerging markets are currently doing.
- Maintain
your global purchasing power
- Spreading
your investments across markets and currencies, minimizes the impact of
currency depreciation or political and market events on your wealth
- Investing
offshore may make it easier to fund any international liabilities and help you
meet your international goals.”
Perhaps
it is time to re-look at your investment portfolio and consider diversifying
offshore. For more information on the offshore investment opportunities
please contact us.
Stay safe and well!
