Be careful how you measure your returns

● It is not a good idea to measure returns from offshore markets in rands, especially when you live in an emerging economy with a volatile exchange rate, says David Nathanson, a global equity specialist at Bellwood Capital.

“Many South African investors have a mindset of measuring their returns in rands — they assume rand strength is their risk when investing offshore, and that rand weakness is good for their offshore investments,“he says.

“As a result, they only see offshore investing as an attractive option if the rand falls, and as a bad decision if it strengthens.”

A global investor living in South Africa should see this country as one of many investment destinations, instead of viewing offshore investment as a success or failure based on what the rand does.

Sygnia portfolio manager Rian Brand agrees that basing an investment strategy on the short-term movements of the rand is not a good idea.

At the start of March, the rand was trading at under R12 to the dollar. Cyril Ramaphosa had just taken over as president, world economic growth was positive, and sentiment towards emerging markets in general was good, Brand says.

Since then the Brent crude oil price has climbed to over $70 a barrel, the dollar has strengthened and fears about a potential trade war have scared investors away from emerging markets, he says.

In the face of all this, the rand couldn't hold on to its gains.

From around R12.50 to the dollar at the start of May, it has retreated all the way to its current levels of around R13.80.

Although this volatility in the rand has left investors confused, it should also serve as an important lesson: trying to predict where the rand is going next is just about impossible. Even the professionals struggle, because there are just too many things that can have an impact, Brand says.

He adds that it’s more important to have a solid, long-term offshore strategy in place to help you meet your investment goals.

“Investing internationally should be about diversification and gaining access to companies and industries that you can’t find on the JSE, not simply about trying to benefit from currency movements.”