It has been said repeatedly that the performance of the local economy does not equate the performance of the JSE. The market, however, is multidimensional and the economy will eventually have a larger-thanexpected impact on a substantial part of the JSE. The multinational darlings, even though hedged against the local economy, have become uncomfortably priced. It is hard to f ind value on the local market, especially when your investment universe is, for all practical purposes, constrained to 20-odd overtraded large caps. This is especially true for institutional investors who suffer under the burden of the benchmark and/or whose decisionmaking processes are fatigued by an enormous asset base.
The problem is aggravated by the industry’s convention to build products which leaves the manager with very little tactical discretion and necessitates the use of a f inancial adviser on which the tactical burden then falls. The f inancial adviser, however, does normally not have the necessary foresight with regard to tactical matters, or when having the foresight, does not have the administrative capability or the courage to act upon his foresight.
Times like these call for unconventional tactics, so I would ask the academics and industry representatives to forgive me as I lay a few tactics before you:
Avoid index funds that track the local market.
Avoid their competition: the mega asset managers. They might even mange to outperform their benchmarks, but the point is to get away from the benchmark. A yardstick can very easily become a stick that can deliver a hiding.
If unit trusts are your chosen investment vehicle, opt for a flexible mandate rather than 100% equity. Opt for a manager who utilises his foreign investment allowance to its full extent.
Allocate an obscene amount of your wealth to offshore investments.
Consider using alternative assets like private equity or hedge funds.
Consider using a segregated portfolio, both for offshore and local investments: underweight local bonds, local listed property, local retailers.
Move into the mid- and even small-cap sector.
Buy large multinationals listed in the
Aug 2013 UK, US and in Europe.
Buy a broad index that has exposure to the US economy. A small-cap index might capture the performance of the US economy even better.
Never underestimate the opportunity value of having some cash on hand.
Buy a growth stock that is changing the world and excites you. Think Google, MasterCard or Amazon. You’ll find a few on the Nasdaq.
Buy a cheaply priced German industrial stock, think Volkswagen and Siemens. German engineering really is what it says it is.
Industry conventions have inadvertently entrenched investors in an end-product which looks very much the same throughout the industry and which transforms at a much slower rate than the investment landscape. Time to break the convention, time to get unconventional.