Magnus Heystek on why it’s essential to build wealth offshore. Who are the real skelms? #BestofBizNews

Magnus Heystek, a seasoned financial journalist who shares his investing expertise through his firm Brenthurst Wealth, has been the subject of nasty attacks by competitors and some who argue that it is disloyal to South Africa to build wealth offshore. Take a look at his number-crunching and commentaries and you will see that it is ludicrous to accuse Heystek of being unpatriotic. Heystek has been preaching the benefits of applying common sense and stripping out emotion in investing for decades, from the time South Africa started opening its borders so that locals could allocate assets outside the country and when everyone was punting the benefits of global diversification. His views have nothing to do with political motives and everything to do with trying to drive home the point that it is incredibly challenging to build a portfolio that will keep you comfortable in retirement. Learn from Gary Player and have the world as your universe of opportunity, is his message. This article was first published in January 2020. – Jackie Cameron

Why Gary Player was SA’s first global sporting star: And what SA investors can learn from him

By Magnus Heystek*

I’m often asked who my all-time  South African sporting great was. And to the surprise of the questioner it’s not one of our rugger-bugger Springboks like Frik du Preez, Jannie Engelbrecht or more recently Bryan Habana. Might it then be a boxer (Gerrie Coetzee perhaps?) or one of our cricketing legends such as Graeme Pollock or HB de Villiers?

No – one has to go back in time, much further, to a sporting giant whose started conquering the stage in his chosen sporting line in the late fifties and is still very active today more than sixty years later.

His name is Gary Player and it is truly an inspiration to see this young 84-year old octogenarian still playing the links, organising and designing golf courses/golf clubs in almost every corner of the globe.

Player is probably more well-known in the USA and Japan than back home, the latter country because they looked up to him due to his small stature, like most Japanese, but who was nevertheless able to match and beat the golfing giants in the form of Jack Nicklaus and Arnold Palmer in those days.

Apart from a couple of wrinkles and slightly slower and stunted golf swing, he looks the same today, and still has his own teeth and full head of hear and hasn’t put on any weight from the days when he dominated SA golf and conquered the world with wins in 9 major championships. It is rumoured that he still does a thousand sit-ups and push-ups every morning. Or maybe it’s the Jungle Oats he still gobbles down.

Read also: Magnus Heystek: RSA Titanic is in groot k#k – don’t let those patriotic swimsuits fool you

Anyway, for a short period of time while I was journalist I was seconded to the sports department and was given golf as a beat. This meant I had to interview Gary many times and follow him on the golf course. I also had the privilege of playing one or two rounds with him in the late 80s and early 90s. And playing a round of golf with someone exposes you to the man/personality for four to five hours.

I learnt for example that Gary, while still a rookie professional at the Killarney Golf Club, had this incredible belief in himself that he managed to find a sponsor from one of the more affluent members of KGC and jetted off, first to the UK and thereafter to the US where he became the first non-American to complete golf’s Grand Slam – a winner of the British Open, US Open, Masters and the PGA. He went on the win more than a hundred and sixty tournaments around the globe – including 13 SA Opens – and one stage claimed he was the most-travelled human being on earth, apart from airline pilots.

These golfing exploits were done during a time when SA did not have television. Most of his golfing victories were recorded in back-page articles of the local newspapers and maybe an interview or two on radio. For many years Gary refused to talk to anyone from the now-defunct Rand Daily Mail, when he was called a Sunday Choker when he, for once, a lost a major tournament when he had a commanding lead. He won the same tournament a year later and rubbed it into the face of that editor whenever he could.

Can you imagine a South African today winning the British Open or Masters without wall-to-wall TV- coverage, as we have seen in later years with players such as Ernie Els, Louis Oosthuizen and Charles Schwartzel. The greatest tragedy in all of this, in my view, was that SA- followers of golf were not able to see Gary’s victories in real -time live on television.

But what Gary also did was to open the path for local sporting stars in whatever sporting code, to head offshore in order to compete with the best and  to share in the financial spoils on offer, mainly created by television coverage. Many South Africans became global sporting giants in a wide range of sports, including cricket, tennis and more recently rugby, earning substantially more money than they would have back home.

Read also: Magnus Heystek: Sunshine journalism won’t change SA’s investing reality

In those days sportsmen were also forced to ply their trade overseas as a result of international sanctions against SA during the apartheid years, such as Barry Richards and Kepler Wessels who went on the play for Australia in order to compete globally.

For rugby things changed after the RWC victory in 1995 when the sport in SA went professional and soon thereafter SA players started heading offshore to play and earn in pounds and euros.

But it was not easy at first. Today it is generally accepted that our best rugby players head to the UK, Europe and Japan to play and earn large amounts of money , as do our cricketers in India and England.  But local administrators and fans in these sporting codes at first resisted and tried to prevent “foreign” players from being selected for SA national teams. This was a misplaced form of nationalism and threatened to rip the different sporting codes apart.

Many players who ventured abroad were also often, in the media and more lately social media, attacked and vilified for “not playing in SA.” How immature.

Today, thank heavens a measure of sanity prevails. Sport has become truly global and anyone still trying to argue against this trend is surely a dinosaur.

Wealth is global

Wouldn’t it be nice, then, to have the same acceptance of foreign investments- as part of a truly global portfolio. Better still that those advisors who recommend offshore portfolios are not vilified and slandered, especially by faceless commentators who hide behind pseudonyms.

Very recently I still had to read the comments by a well-known columnist for an Afrikaans Sunday newspaper that, amongst other things,  offshore investing is a “false narrative” and that those who recommend offshore investments must be treated with a modicum of suspicion and be considered “skelms”. A traitor in other words. The columnist ended his diatribe – by calling himself a “bittereinder” and that he sees offshore investments as being unfaithful to one’s country and peoples.

This is not as uncommon as one would think. Sometime last year I was listening to a podcast by a well-known  financial commentator (radio, TV and print) who uttered the nonsensical comment that he “doesn’t believe in foreign investments”. I kid you not and I had to replay the podcast to my wife to reaffirm what I heard.

I suppose this kind of ingrained reaction comes from many decades of foreign exchange controls, roughly from about  1960 to 1997. Only then was the door slightly opened to foreign investment. Up to that point SA and the JSE was seen as the centre of the investment universe which suited the JSE, the local insurance companies and asset managers who became fabulously wealthy and large beyond comprehension during this time of foreign exchange controls and myopia by local investors.

As independent economist Mike Schussler often points out, the SA pension industry with almost R4.4trn in assets under management, is the 8th largest in the world, largely due to these unique historical local conditions.

To this end anyone who advocates foreign investments are seen as (a) disloyal, (b) unpatriotic, (c) an idiot (as I was called by a fund manager in front of 300 people and (d) possibly  a “skelm” with ulterior motives.

Now all of these descriptions may or may not apply, but the fact of the matter is that the JSE has not been a great place to be over the past 10 years, especially the last 5 years. Since 2014 years the returns on the JSE has been one of the lowest for any major stock exchange and even in 2019, after recording a return of approximately 10%, was  it second to last while major indices such as the MSCI World index returned 25% and the Nasdaq  34% in US dollar terms. Only the Hong Kong market, which has been hugely affected by the year long-riots and protests, did worse than the JSE, by a very small margin.

Let’s not use the Nasdaq as a yardstick but rather the S&P500 (+116% in rand terms) or the MSCI World index (+94%). The returns of the JSE over the same period , up a mere 37%, could not even match its peers in the emerging markets, which averaged an increase of 68%.

See chart below.

To date I have not seen a comprehensive article in any major news outlet comparing the performance of the JSE with that of the rest of the world.

The local investment industry has a major vested interest in maintaining the status quo, especially the large and lumbering insurance companies with massive pension funds built up over many decades, rather than years.  The carefully crafted narrative from these companies is to protect their existing business and to prevent too much money from being withdrawn.

Last year in February/March  investment giant Old Mutual went round the country doing roadshows to its advisors, confidently predicting that the JSE would be one the best performing stock markets in the world going forward.  For some context: the OM Investors Fund – its largest fund with AUM of R11bn – has returned 1,37% per annum to its investors over the past 5 years. I wonder if the average investor knows this?

The industry is also gallantly trying to convince investors in these Reg28 funds – retirement funds that only allow 30% exposure to offshore markets—that this exposure is sufficient to build up adequate retirement capital.

Well, I beg to differ, especially if one looks at the putrid returns of Reg28 funds over the past 5- 7 years. Very few funds have beaten the inflation rate, especially when platform and advisor fees are included.  The retirement crisis for millions of middle-class retirees has just become a very nasty reality. Added to that, the local residential property market  has gone going virtually nowhere over 12 years, with average prices down 23% in REAL terms. Talk about the lost decade and shattered retirement dreams.

I never thought that after a career of almost 40 years in the financial services industry that I would find myself the focus of prolonged and vicious attacks… all because I am trying to  provide good financial recommendations, not based on vested interest (a huge problem in the industry), disloyalty or lack of patriotism, but simply based on an analysis of the facts and the horrible macro-economic environment we find ourselves in.

Ah well, perhaps the key is to forget all about this noise flying around for a while and do some sit-ups, like Gary. Let’s see if I can 10.

  • Magnus Heystek is investment strategist at Brenthurst Wealth.