Magnus Heystek – Rand’s collapse is rewarding smart money that listened, punishing amateurs who didn’t – and may not be over

Independent financial advisor Magnus Heystek, a long-time advocate of offshore investing, is back in top form after his clients’ portfolios have rocketed over the past few weeks, as the South African rand fell sharply. In this podcasted interview with Alec Hogg of BizNews.com, the founder of Brenthurst Wealth unpacks reasons for the currency’s plunge – and warns it may not be over. He also shares advice on what to do next and takes a swing at SA’s financial sector, where comparison by fund managers between themselves is outlawed, leaving many of their clients unwittingly supporting poor performers.

Magnus Heystek on a possible missed opportunity to take money offshore when the rand was at 14 or 15

If you look at what’s happening both to the Rand and Mauritian properties, they’ve both escalated and it’s becoming almost unaffordable for many, many South Africans, unless they are super wealthy. So that’s just unfortunately one of the effects. There are other ways to retire in Mauritius without buying property, but the property route is closing very rapidly, purely because people say, yes, that’s expensive. You can retire on a retirement permit or occupational permit, but the property route is closing. The process of galloping, there’s very little to buy, and another three or four crashes has added another dimension to it. 

On Piet Viljoen and if the change in the rand in past weeks has transformed an investor’s picture

Dramatically I mean, as you point out, the first six months reporting was a very good time for Piet and his portfolio and a very poor one for me. And I tracked these things and the situation has recovered fairly dramatically. It’s like a horse that starts out of the stalls slightly behind the leader. But now you’re two innings behind the leader. So there’s been a sea change in the relative performance between SA and your offshore funds. In fact, I’m amazed how quickly it has happened, but it’s like a 20% swing in relative performance. First of all, you had the rand weakening from 1440 to 1725 and also Piet’s funds started dropping on the basis of the commodity cycle. So Piet’s fund has dropped in rand terms and in dollar terms at the same time, whereas the offshore funds are starting to recover and other end also – suddenly offshore funds are gapping again. And you know, it’s quite dramatic how quickly it can turn around. 

On the reason behind the dollar strength and rand weakness

First of all, it’s a dollar story. It’s not only in retrospect, it’s not only South Africa, but we’re in that emerging market basket and we’re being slaughtered alongside Hungary and the Philippines and even South Korea. And it’s just dollar, dollar, dollar strength. So that’s the first factor fund managers are getting out of emerging markets, including ours. And they tend to choose the weaker, fragile fund managers when that happens. And that’s exactly what’s happening. So you have the dollar strength plus the potential for rising interest rates in the US and then lastly, the potential for a recession in the US. And there is a danger when people say: is the rand drop over? I say, I don’t know. But if you look at history, when the US goes into a recession, commodities collapse and the South African currency collapses with it so the currency can go. I’m not saying it will. It can go as low as 19, even 20 in the next year and a half if the US goes into a recession. There’s no finality on that issue yet but it looks that way. And then of course the local factors also suddenly regain prominence, like the Eskom situation that really has added a little, you know, extra dimension of negativity to South Africa, with big investors saying, well, there’s a country that’s within hours of a total collapse of the grid. Let’s just get out of there just in case. 

On being better informed rather than listening to somebody with an agenda or vested interest

If you go back in time, 20 or 25 years ago, offshore investing was illegal. and since then, there’s been a massive, massive switch to offshore investing. And one thing I’m sure this graph shows clearly is that South African investors now have more money offshore than local foreign investors have in South Africa. So the smart longer term investors have externalised a very large percentage of their liquid assets by now. Therefore, they need to follow Bloomberg they need to read the Wall Street Journal, via BizNews, of course, and they need to be up to date with what’s going on, because the world out there is so much bigger and the opportunities are so much bigger, as you see in the returns of the offshore portfolio. Those are the returns that the investors have had. And now here comes a situation which you might want to pick up one day. Local fund managers, offshore fund managers may not compare returns. They may not do it publicly. They may not name company A versus B, it’s up to the press and independent commentators like ourselves. We can compare it, but by some regulation, fund managers may not compare their returns to other funds. 

On the future and if he’s advising clients to take more money offshore or just sit tight

I think it is a dilemma for us now. A currency that crashes or any instrument that rises or drops so quickly in such a short space of time runs the risk of clawing back some of its losses. And that may happen from today onwards. We don’t know. But you weigh up against the longer term objectives, what do you intend doing with your money? Are you buying other assets on the other side? How much money have you got? It’s a long process. And in many cases we tell people, look, if you have let’s say you got 5 million to invest, we buy a million today, 5 million a week or two later or a month later and try and get it right. But you’ll never get it absolutely spot on. I always say if you have the cash to buy a dollar investment, buy it. Because remember, you also try to time the rand and you try to time the offshore assets or whatever it might be, let’s say the US stock market, and you try to get it corrected both ways. The rand and the offshore market. Impossible, impossible. We tend to say if you buy, buy now because you’re buying something cheaper on the other side.

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