Opportunity in uncertainty

In a Feb 2017 interview featured in Moneyweb’s ‘The Investor’, head of Old Mutual International SA, Wayne Sorour, brought the South African economy into sharp focus: ‘Representing less than one percent of the global economy and expecting less than two percent growth in GDP per annum over the next two years, [it] appears unlikely to offer local investors the chance of decent returns.’

Additionally, chief strategist at Citadel, Dr Adrian Saville, had commented in a 16 January ‘Financial Planning’ slot: ‘If you lived on Mars and you looked at the world and said where should I allocate assets, anything more than one percent allocated to SA would be an overweight position.’

This argues the case for investing a portion of your assets offshore. Although political uncertainty, coupled with poor domestic economic performance, are driving many South Africans to invest offshore, Saville points out that global factors have a greater influence on the Rand than domestic ones. ‘There’s lovely work that’s been done by the IMF, which … suggests [only] about one-third of the rand’s performance is explained by South African-specific factors. Of course, when it comes to commentary on the rand, we spend about 100 percent of our time talking about domestic factors, but … it’s worth noting that two-thirds of rand behaviour, based on this evidence – and it’s robust evidence – actually is influenced from outside the country.’

Saville goes on to mention commodity prices, risk on, risk off (where investors move to riskier, potentially higher-yielding investments and then back again to supposedly lower-yielding investments that are perceived to have lower risk), activity in the Fed, Brexit decisions and even the latest shenanigans of Trump.

Instead of merely reacting to domestic concerns, head of Orbis client servicing at Allan Gray, Tamryn Lamb, advises investors to make diversification ‘a long-term objective, [and] then [to] work towards achieving it over an extended time frame and at a regular pace.’

According to Sorour, offshore investors have two basic options: they can invest directly; or via a rand-denominated offshore or asset-swap fund. YDL works with investors intent on the former model and concurs with Sorour that there is really no preferable route or recommended portion of wealth to steer offshore – rather, it is unique to each individual, their age, family set-up, financial position/overall wealth and specific goals. How much risk you’re prepared to take may depend on whether you’re – for example – age 40 and wanting to build your pension for retirement; or age 75-plus and wanting to preserve your portfolio.

Globally, advises Saville, bonds are looking expensive, while equities are more attractive but could trap value. YDL offers a unique opportunity to invest directly in property flips that, although not without their own risk, could provide the diversification astute investors seek in the quest for a more balanced portfolio; and a hedge against the volatility of the rand.

In conclusion, offshore options could serve to broaden investment opportunity and help protect accumulated wealth against ‘a future that is essentially unknowable,’ concludes Saville.

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