Benefits of diversifying across the globe

● Investing across currencies introduces more volatility but the benefits of investing offshore are the diversification you get across markets and industries you don’t have access to in South Africa.

If you invest in the local market in line with a major index like the All Share Index, 40% of your investment will be in shares that benefit from consumer spending, while an investment tracking the MSCI World Index would only have an exposure of 12.7% to consumer-driven shares such as retailers, says Earl van Zyl, the head of product development at Allan Gray.

Given high unemployment, the slow rate of job creation and slow growth in wages in South Africa, putting 40% of your investment in shares driven by the fortunes of consumers is quite risky, he says.

In the Alsi, your exposure to mining is 20%, while the MSCI World Index’s exposure to this sector globally is only a quarter of that, he says.

The JSE has less than 1% exposure to technology shares, while there is an almost 18% exposure in the MSCI World to the technology sector.

A higher exposure is important if you believe technology will be an important driver of growth, says Van Zyl.

The JSE is very concentrated in a few sectors and companies, and the benefits of diversifying away from this is much more important than trying to time the market, Van Zyl says.

Diversified investments deliver different returns at different times, he says.