Financial Mail - Investors Monthly - - Analysis: General Equity Funds - Žů ĞŬŝ Ă ĮŶ ĞĂů Ś

For an in­vestor in the South African equity mar­ket, 2018 has to date been a year most would pre­fer to forget. De­cem­ber’s Ramaphosa eu­pho­ria has quickly given way to the re­al­i­ties that re­main, which can­not be ig­nored - such as cor­po­rate scan­dals, the bur­geon­ing debt of State Owned En­ter­prises and un­cer­tainty around the land is­sue.

De­spite the many changes over the past al­most 25 years of our democ­racy, South African in­vestors gen­er­ally still seem to di­vide the in­vest­ment world into two dis­tinct cat­e­gories - lo­cal and off­shore. Fur­ther­more, they tend to al­lo­cate a rel­a­tively small por­tion to off­shore, elect­ing in­stead to re­tain the lion’s share of their in­vest­ments in South Africa. While it is im­por­tant to have lo­cal in­vest­ments to cover liv­ing ex­penses and fi­nan­cial com­mit­ments in South Africa, not hav­ing a healthy off­shore ex­po­sure does not pro­vide an op­ti­mal so­lu­tion. In fact, even a lo­cal port­fo­lio does not ac­tu­ally pro­vide you the South African ex­po­sure you think you are get­ting.

To il­lus­trate this point, con­sider a port­fo­lio in­vested in the top 40 com­pa­nies, by mar­ket cap­i­tal­i­sa­tion as listed on the JSE. One ac­tu­ally gets very lit­tle ex­po­sure to the South African econ­omy. With the ex­cep­tion of the banks and re­tail­ers, most of the com­pa­nies have ex­ten­sive in­ter­na­tional ac­tiv­i­ties or in­vest­ments, trans­lat­ing into high off­shore ex­po­sure. While many ar­gue that this is a good thing, as off­shore ex­po­sure and a hedge against the rand is al­ready nat­u­rally em­bed­ded in our mar­ket, this would be a gross over­sim­pli­fi­ca­tion.

An­other key con­sid­er­a­tion is the mag­ni­tude of the ex­po­sure to cer­tain ge­ogra­phies, in­dus­tries and even sin­gle en­ti­ties - for ex­am­ple, the ex­po­sure to China in the JSE’s Top 40 in­dex. Naspers, which makes up over 20% of the Top 40 in­dex, es­sen­tially de­rives all its value from its in­vest­ment in Ten­cent, the Chi­nese in­ter­net gi­ant. Add to that the re­source com­pa­nies’ ex­po­sure, and the over­all ex­po­sure to China in­creases even more.

We are not say­ing this level of ex­po­sure to China is in­cor­rect or cor­rect, or that one would have such a large ex­po­sure to Naspers to start with. Seek­ing off­shore ex­po­sure in this way would, how­ever, limit choices, both ge­o­graph­i­cally and in terms of in­dus­tries. Even though Ten­cent has proven to be a suc­cess­ful in­vest­ment over the years, there are many other great tech­nol­ogy plays across mul­ti­ple ge­ogra­phies, that could be con­sid­ered to achieve a broader and ar­guably more op­ti­mal di­ver­si­fi­ca­tion.

A mind­set shift to a truly global ap­proach to in­vest­ing pro­vides ac­cess to far more op­por­tu­ni­ties for di­ver­si­fi­ca­tion across ge­ogra­phies, in­dus­tries and as­set classes. This global mind­set gives one the abil­ity to in­vest in the best busi­nesses and in­stru­ments from around the world.

We con­tinue to en­cour­age our clients to be­come global in­vestors, pri­mar­ily as it pro­vides ac­cess to a vast set of in­vest­ment op­por­tu­ni­ties, which in turn im­proves the very im­por­tant risk-re­duc­ing ben­e­fits of global di­ver­si­fi­ca­tion over the long term.

It is for these im­por­tant in­vest­ment rea­sons that the global theme re­mains cen­tral to our think­ing at Sas­fin Wealth. In ad­di­tion, ex­change con­trols have re­laxed dra­mat­i­cally over the years, mak­ing true global in­vest­ing ac­ces­si­ble to South Africans, which in­cludes in­creased lim­its on the per­cent­age one can take off­shore in a re­tire­ment fund.

Please speak to your Wealth Ad­vi­sor or Port­fo­lio Man­ager about our global so­lu­tions, for at Sas­fin Wealth, we of­fer you one as­set class - the world.

Erol Zeki

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