Rand­hedge port­fo­lio

Finweek English Edition - - INVESTMENT -

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

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