Glacier Quarterly 1 - 2018
In this first edition of Glacier Quarterly for 2018, we cast our gaze across the year ahead – with a little more positivity than in previous years.
In this first edition of Glacier Quarterly for 2018, we cast our gaze across the year ahead – with a little more positivity than in previous years.
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OFFSHORE INVESTING<br />
Shipping it all out?<br />
The question remains: if an investor<br />
isn’t currently in the fortunate position to<br />
have significant offshore exposure, is now<br />
the time to invest a material proportion<br />
of an investment portfolio abroad? Also,<br />
given the current uncertain political and<br />
economic landscape, should South Africans<br />
consider investing their entire portfolio<br />
abroad?<br />
One should never, of course, ask<br />
questions about timing when emotions<br />
are running high. From an investment<br />
perspective, this is easy to explain. When<br />
the environment is obviously toxic and<br />
herd instinct takes over, the news is<br />
normally already reflected in the price of<br />
assets.<br />
If an investor is incorrectly positioned<br />
at the time, it implies that to correct the<br />
position, they’ll need to sell the unpopular<br />
asset, which in all likelihood will be cheap,<br />
and buy the popular asset, which will<br />
likely be expensive – hardly a trade that<br />
will serve the investor’s interests over the<br />
longer term.<br />
This scenario was evident in 2001, when<br />
South Africans panicked after the rand<br />
rapidly lost ground against cross currencies<br />
at a time when the popular view was that<br />
South Africa was simply another Zimbabwe<br />
in the making. Not only did South African<br />
investors who followed that popular<br />
argument sell a cheap currency (the rand),<br />
they also bought expensive currencies<br />
(US dollars or British pounds). It took the<br />
currency 14 years to get back to those<br />
levels, as can be seen on this graph:<br />
SA Rand versus US Dollar<br />
16<br />
14<br />
12<br />
10<br />
9<br />
8<br />
7<br />
6<br />
5<br />
1999<br />
2000<br />
2001<br />
2002<br />
2003<br />
Even worse, cheap South African shares<br />
were sold to buy expensive offshore<br />
shares. And if this was the only investment<br />
decision made over this period, these<br />
investors will to this day not have caught<br />
up with what their position would have<br />
been had they remained invested in South<br />
Africa, as the next graph shows:<br />
SA Rand versus US Dollar<br />
500<br />
400<br />
300<br />
200<br />
150<br />
100<br />
80<br />
60<br />
50<br />
2001<br />
2002<br />
2003<br />
2004<br />
Is it different this time?<br />
2004<br />
2005<br />
2005<br />
2006<br />
2006<br />
2007<br />
2007<br />
2008<br />
SA ZAR / US$ (11.9141)<br />
So is it different this time, or are<br />
investors who follow the herd instinct<br />
likely to make the same mistake they<br />
did in 2001? Focusing only on the two<br />
most crucial prices, we don’t believe the<br />
situation is entirely the same. First, the<br />
2008<br />
2009<br />
2009<br />
2010<br />
2010<br />
2011<br />
2011<br />
2012<br />
2012<br />
2013<br />
2013<br />
2014<br />
2015<br />
2016<br />
2017<br />
<strong>2018</strong><br />
World Equities Dollars (168.49)<br />
SA Equities US$ (383.136)<br />
2014<br />
2015<br />
2016<br />
2017<br />
<strong>2018</strong><br />
Source: I-NET<br />
Source: I-NET<br />
rand is now not as cheap against the cross<br />
currencies compared to 2001. In fact, the<br />
rand is more or less fairly priced against<br />
the euro and the British pound at current<br />
levels. Second, while we believe the South<br />
African equity market is cheaper than its<br />
international peers – and we’re therefore<br />
reluctant sellers – the price ‘gap’ isn’t as<br />
wide as it was in 2001.<br />
If a portfolio is very biased towards<br />
South African assets, we’ll therefore still<br />
consider migrating money offshore given<br />
the current exchange rate and prices of our<br />
equities. However, we’ll certainly not argue<br />
for a complete disinvestment from South<br />
Africa. Ignoring the jurisdiction where the<br />
liabilities vest (that is, future spending and<br />
income requirements), South Africa still<br />
offers unique investment opportunities at<br />
prices that offer a justifiable future reward<br />
for those prepared to invest in these<br />
opportunities.<br />
In a nutshell<br />
At Sanlam Private Wealth, we manage<br />
our clients’ portfolios actively. Our<br />
investment philosophy rests on the<br />
belief that the level of prices, rather than<br />
investment sentiment, should dictate<br />
investment decisions. While we certainly<br />
don’t ignore the perspective of the<br />
investment environment, we’re wary of<br />
taking radical investment decisions when<br />
emotions have already driven prices<br />
away from their fair values. Against this<br />
background, we’re of the opinion that<br />
it would be inappropriate for a South<br />
African investor to invest an entire portfolio<br />
abroad. However, if an investor’s portfolio<br />
does not have material offshore exposure<br />
currently, we’d consider it prudent at the<br />
current exchange rate of approximately<br />
R12 to the dollar to migrate a portion of<br />
assets offshore.<br />
There are different ways of accessing<br />
the global market – at Sanlam Private<br />
Wealth we provide the full range of options,<br />
with a customised offshore solution to<br />
complement your individual investment.<br />
Alwyn van der Merwe<br />
Director of Investments at<br />
Sanlam Private Wealth
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