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 1^st October 2019 to 30^th 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 Equity funds: 21%

• 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:

1. More investment opportunities:
2. Local investors are limited to a smaller opportunity set as SA makes up less than 1% of world GDP.
3. 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!