The rand is currently trading at around R8.90/USD after being R7.40/USD during March this year, and ahead of the ANC elective conference in December there are renewed fears about further rand weakness. Personally, I find trying to predict a currency, especially the rand, to be very tricky – but that said, how do you protect an investment portfolio against rand weakness and construct a rand-hedge portfolio? In the olden days a rand-hedge portfolio basically meant a collection of mining stocks, but these days you can have a very rand-hedged portfolio without a miner in sight and in fact a well-diversified portfolio will be a considerable rand hedge.
The easiest route by far would be the Absa exchange-traded note (ETN) that’s issued over the rand/USD exchange rate (it also has a euro and sterling ETN). TN). The code for the USD one is NEWUSD EWUSD and it moves perfectly in sync nc with the rand/USD exchange rate. As a rand hedge there is nothing better, but the e drawback is that all it is, is a rand hedge. e. It’ll never make company profits, pay dividends ividends or anything else like a normal listed ed company would.
Turning to the Top40 Index, the vast majority of the stocks in the index have at least a part or all of their earnings in currencies other than the rand, with many even reporting results and paying dividends in currencies other than the rand.
But let’s drill into the different types of rand-hedge stocks, basically there are two ways of looking at rand-hedge stocks: those that earn part or all of their income in currencies other than the rand and then the pure rand hedges that report their results and pay dividends in other currencies.
Mining stocks fall into the former category as they sell whatever it is that they mine in USD so any weakening of the currency would boost their earnings in rand and all their income is from selling these minerals on the open market in USD, which they then convert back into rand for reporting profits/losses. The risk with local mining stocks is that costs have