Protect yourself from politics

Investors must go global as a shield against uncertainty

POLITICAL uncertainty is one of the worst things that could happen to your investment portfolio. Unlike risk — which can be measured up to a point — the impact of uncertainty requires a waitand-see approach.

Karin Richards, an independent trader, says it’s for these moments you should have stocks that hedge against rand movements: companies with a diversified geographical presence.

“Look for well-managed companies with hard currency earnings,” says Richards. Her picks for long-term hedging are British American Tobacco, property group Hammerson, mining company Glencore, retail group Steinhoff and paper and pulp manufacturer Mondi.

Richards says it’s important to look at the company’s geographical split of revenue and earnings.

Many companies provide a table of sensitivities to the currencies that impact them most in the “analyst fact book” section or in the company’s results presentation booklet, she says.

Investors should ensure that foreign-denominated debt is matched by revenue in percentage terms. “If 10% of debt is in euros, check that roughly 10% of revenue is also in euros.”

Exchange traded funds that track international indices are a great way to venture into international markets without having the worry of having to pick individual stocks.

Choosing an ETF like DB-X Eurostoxx 50, which Richards says is an “excellent rand hedge”, along with the DB-X US, might make sense.

The Eurostoxx tracks the top 50 companies in the eurozone, while the DB-X US tracks the MSCI USA index, which measures the performance of the US economy.

However, she cautions that “after an eight-year bull market, investors should stagger their buying and keep some cash for the inevitable dips”.

Kristia van Heerden, CEO of investment education platform Just One Lap, says some of her picks for international exposure are the CoreShares S&P Global Property and CoreShares S&P500 ETF.

The property fund tracks top property companies across eight countries. The CoreShares S&P500 ETF tracks 500 US shares.

As the rand had been strong recently (but is now rapidly weakening), pay attention to your timing.

Buying foreign stocks when the rand is on a downward spiral could lose you money.

Local stocks tend to be affected by rand movements and political noise. For example, since the recall of former finance minister Pravin Gordhan from Europe on Monday last week, the JSE Banks index has fallen by around 13%.

But beware of being tempted to sell in a panic: such a move would be rash, says Van Heerden.

Instead of succumbing to your emotions, snap up some stocks that are good value, or simply hold on to what you have and ignore the noise.

As an investor, you can never be certain what elements — be they political, economic or industry specific — could affect your portfolio.

Taking well-thought-out safety measures now could end up saving you a lot of money.

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