Saturday Star - - SPORT -

If you are wor­ried about the ef­fects of the rand’s strength on your long-term re­tire­ment sav­ings and you have a well-con­structed, di­ver­si­fied port­fo­lio, you should not stress.

Pi­eter Koeke­moer, the head of per­sonal in­vest­ments at Corona­tion Fund Man­agers, says it is not easy for a new­comer to the fi­nan­cial mar­kets, who has only re­cent ex­pe­ri­ence to go on, to heed this ad­vice. Ex­pe­ri­enced in­vestors who have been through dif­fer­ent mar­ket cy­cles are likely to be more san­guine.

Koeke­moer says that the reg­u­la­tion 28 ceil­ing of 25-per­cent off­shore ex­po­sure for re­tire­ment funds has proved to be a fairly re­li­able strate­gic al­lo­ca­tion for the long-term re­tire­ment saver who is aim­ing for a real (af­ter-in­fla­tion) re­turn of five per­cent and wants to draw a pen­sion in rands. In fact, over the last 10 years, multi-as­set funds with a 20 to 25 per­cent off­shore al­lo­ca­tion have per­formed sim­i­larly to lo­cal gen­eral eq­uity funds – about 10 or 11 per­cent a year – but at lower risk.

Look­ing for­wards, he says the longer your in­vest­ment hori­zon, the more likely it is that the rand will weaken against de­vel­oped-world cur­ren­cies. The rea­son is sim­ply the in­fla­tion dif­fer­en­tial be­tween the South African econ­omy and the de­vel­oped mar­ket economies. In­fla­tion in South Africa is an­chored at about six per­cent a year, and in the de­vel­oped world it is an­chored at about two per­cent a year, giv­ing you a four-per­cent-a-year dif­fer­ence.

Natasja Hart, a wealth man­ager at GCI Wealth in Jo­han­nes­burg and an ac­cred­ited cer­ti­fied fi­nan­cial plan­ner, says the rand is no­to­ri­ously vo­latile.

It’s in­ter­est­ing to note, she says, that the rand is roughly the world’s 20th most traded cur­rency and makes up around one per­cent of the world’s daily cur­rency trade, ac­cord­ing to a sur­vey by the Bank of In­ter­na­tional Set­tle­ments.

The cur­rent ro­bust rand is not only dent­ing off­shore in­vest­ments, but also rand hedge shares. Hart says many in­vestors are feel­ing the neg­a­tive ef­fects of rand strength through ex­po­sure to these shares. People are more likely to be liv­ing off the pro­ceeds of lo­cal port­fo­lios than off­shore port­fo­lios, Hart says, and there­fore the ef­fect on rand-hedge stocks can be se­vere.

Hart’s ad­vice is to stick to the fun­da­men­tals and not to let short­term volatil­ity de­tract from your longterm strat­egy, which must be based on a holis­tic in­vest­ment plan.

She says your off­shore al­lo­ca­tion should be drawn from ex­cess cap­i­tal above the amount re­quired to ser­vice your pri­mary li­a­bil­i­ties. “Your re­tire­ment in­come re­quire­ment is a li­a­bil­ity, so you must have suf­fi­cient cap­i­tal in­vested in the cur­rency of the coun­try in which you are liv­ing to ser­vice this li­a­bil­ity. You can’t base your re­tire­ment plan on the prob­a­bil­ity of the rand weak­en­ing to make up the dif­fer­en­tial.”

Hart says if you want to take ad­van­tage of the stronger rand to in­vest funds off­shore, the in­vest­ment must be ap­pro­pri­ate for your port­fo­lio. She says a num­ber of her clients with sur­plus as­sets are us­ing the op­por­tu­nity to boost their global port­fo­lios, not least be­cause of po­lit­i­cal un­cer­tainty lo­cally.

Koeke­moer cites po­lit­i­cal un­cer­tainty as an on­go­ing risk.

“You can paint a do­mes­tic po­lit­i­cal sce­nario that is be­nign and pos­i­tive, which could trans­late into fairly sig­nif­i­cant fur­ther rand strength to­wards the end of this year, but you could also paint a sce­nario that is quite dark, where you are back to the Nenegate-type ‘fear’ de­cline in the value of the rand.

“That plays out against el­e­vated global po­lit­i­cal un­cer­tainty, be­cause you don’t know what the po­ten­tial cause for the next global cri­sis could be – a Euro break-up, trou­ble in China, or ir­re­spon­si­ble be­hav­iour from an un­prece­dented pres­i­dent in the United States.”

Your port­fo­lio should be di­ver­si­fied and ro­bust enough to cope with un­cer­tainty, Koeke­moer says.

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