Most fund managers spent the past five years recommending that investors allocate a portion of their investment wealth offshore, but it was only when former finance minister Nhlanhla Nene was fired in November and the rand collapsed overnight that many made the decision to transfer some money offshore in what can mostly be described as blind panic.
This kneejerk reaction to bad news unfortunately created a misperception of the reasons one should invest abroad at all. It is not a pessimist’s decision; it is part of diversified wealth creation.
Duggan Matthews, investment professional at Marriott Asset Management, makes the argument that South Africa makes up less than 0.5% of global stock markets and, as residents, we are already heavily exposed to South African assets and currency through our lifestyle assets, pension funds and income.
Investing offshore provides South Africans with access to stable global brands, especially if the portfolio is geared towards household names such as Colgate, Nestlé and Coca-Cola.
Marriott recently launched its international investment portfolio, which focuses only on quality, stable companies that are geared to benefit from the rise of the middle class in emerging markets.
The aim of the fund is to provide South Africans with direct share exposure to household names that provide a decent dividend income at a low price.
Marriott has a clear investment philosophy, namely securities that produce reliable income streams that grow above inflation purchased at a reasonable price.
This means that it sticks to quality stocks that provide an attractive dividend yield and, over time, the dividend yield provides investors with an income, removing much of the stress associated with buying in the hope of shorter-term share price increases.
Matthews uses Colgate as an example of an international company that is well positioned to grow from an increasing middle class. Although it’s a company listed in the US, Colgate has market domination in emerging markets such as South Africa, Mexico, India and China.
“The estimations are that, globally, the middle class will grow from 2 billion to 5 billion people by 2030 and all these people need to brush their teeth,” he says.
Not only should Colgate’s share price rise over time, but it is currently on a dividend yield of 3.3% in dollars, which is double what you would earn from cash dollars or even US bonds. In the past 50 years, Colgate has increased its dividend payments every year and there is no reason it will not continue to do so.
“We like companies that make everyday consumer necessities, are hugely predictable and have distribution networks globally that are well positioned to take advantage of the economic opportunity in the rise of the middle class in emerging markets,” says Matthews, whose portfolio does not invest in the more volatile and unpredictable sectors such as mining or commodities.
Should you still take your money offshore at R16 to the dollar?
“People still remember the rand trading at R7 to the dollar and they think it could go back to those levels. A year ago, people did not want to take their money offshore at R12 to the dollar. Now, most are wishing they had,” says Matthews, who adds that an investor needs to look at the bigger picture rather than try to find the perfect time to invest.