On the lookout for growth opportunities
A WELL-CONSTRUCTED PORTFOLIO SHOULD PROVIDE A GOOD BALANCE BETWEEN ESTABLISHED BUSINESSES AND GROWTH BUSINESSES
Estimations are that between 65% and 80% of local investors total wealth is directly exposed to the South African economy.
According to the Afrasia 2019 SA Wealth Report, high net worth individuals in SA hold less than 20% of their wealth offshore.
What this means, says Chris Potgieter, MD of Old Mutual Wealth Private Client Securities, is the majority of investors have too many eggs in one basket and have not diversified sufficiently. Offshore developed markets, he argues, offer more depth and breadth relative to the local market, which allows them to better diversify risk and access more investment opportunities for growth.
Along with risk mitigation, growth is the key reason for investing offshore,” he says. Global investment markets particularly those in developed markets offer more opportunities to invest in longterm growth sectors such as technology and healthcare. Any one of the top five listed companies in the world is greater than the combined value of all the companies listed on the JSE.”
It s essential to consider an investor s total wealth when devising a global investment strategy. Total wealth, explains Potgieter, includes career, business and property interests, as well as investments such as pensions. Once an investor has adequate provision in SA for local income requirements and liabilities, more liquid assets could be invested offshore for capital growth and protection. These direct offshore allocations are likely to be important to supplement the limited offshore exposure achievable through pension funds.
While offshore investments are typically considered to be a subset of total wealth, he believes it should be the other way around and that the local investment should be a subset of an investor s total global wealth.
An offshore investment portfolio should be created around an investor s specific needs but, speaking broadly, a typical equity portfolio would be heavily invested in US multinational companies together with selected UK and European multinationals, providing exposure to both developed and developing markets,” he says, adding that a well-constructed portfolio should provide a good balance between established businesses and growth businesses.
Although considered to be inherently more risky, emerging markets could form part of a portfolio by investing in multinational companies that operate in these markets such as Diageo, Starbucks, Walt Disney and Nike, among others.
While the emotional response is that emerging markets are likely to deliver the same lacklustre returns they have over the past few years, the rational response, however, is to ensure global diversification across markets and geographies, and this includes emerging markets. Our experience of the past decade should teach us the rational response is the more prudent one,” says Potgieter.