Foreign assets can help to diversify risk
Covid-19 pandemic has exposed companies — and countries — with vulnerable business models
South African specific risk has highlighted the importance of diversification. At the same time, Covid-19 has created opportunities for businesses, many of which might not be accessed by companies domiciled in SA.
So, how does one navigate the offshore environment, and ensure a portfolio makes sense from a diversification perspective? When looking at foreign markets from the South African investor s perspective, the biggest risk investors should be trying to diversify is the local economy will continue to underperform, and global growth may disappoint, says David Crosoer, chief investment officer at PPS Investments.
Our thinking is not that SA is doomed to fail there are
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signs we may be turning a corner but in an environment
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that remains challenging for SA it s important foreign assets can help diversify the risk of local
assets performing poorly,” says Crosoer, adding that while one might also hope foreign assets do well should South African assets also perform, this is not necessarily the most important criterion investors should be concerned about when they put money offshore. Investors should be willing
“to tolerate some foreign underperformance in their portfolios in a scenario that SA does particularly well, because one doesn t necessarily want to ’ be doubling up on the same bet when one invests offshore.”
One of the big themes the Covid-19 pandemic has accentuated is how it has exposed companies and — countries with vulnerable business models. In our view, “SA remains exposed, and although we hope to be positively surprised, an investment strategy focusing on companies best poised to benefit from the current environment, rather than companies that look inexpensive, makes sense,” he says. However, we re aware “’ that bombed out value ’ strategies are likely to perform exceptionally well should the world turn out better than expected.”
The PPS Global Equity Fund and PPS Global Equity Feeder Fund are both aimed at making it easier for investors to access offshore opportunities, he says.
The PPS Global Equity Fund gives investors exposure to the new perspective strategy of the partnership manager, Capital Group, which is one of the most successful global investment firms. The PPS Global Equity Fund (in US$) and PPS Global Equity Feeder Fund (in rands) gives South African investors exposure to one of their flagship investment strategies.”
Founded in the 1930s, the Capital Group has unrivalled institutional memory including how to manage money through the Great Depression, World War II, the 1970s stagflation and, more recently, the technology bubble of the late 1990s, the global financial crisis of 2008 and the Covid-19 pandemic of 2020.
Through this, points out Crosoer, the Capital Group has built an enduring capability in identifying, nurturing and deploying portfolio managers to build on their success. As a
“multimanager that assesses managers all the time, we can see what a competitive advantage the Capital Group has, and how difficult it is for other firms to come close to replicating their success.”
He says the Capital Group s strategy combines the insights of several portfolio managers who are given a clean slate to construct their best ideas. This means the PPS Global Equity Fund will never be beholden to one single idea or style, but rather it can adapt as portfolio managers are challenged in their thinking, and new ideas come into their funds. This ability to successfully take advantage of different opportunities over a long period accounts for the incredible consistency the strategy has delivered over time.”