WE OFFER YOU ONE ASSET CLASS – THE WORLD
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.