Local v Offshore R1m Challenge: Magnus’s jockey back on, Piet still has handy lead

At the halfway mark in the Local v Offshore investment challenge, Magnus Heystek’s foreign holdings have recovered from an appalling start to move into positive territory. Piet Viljoen’s SA-focused portfolio, however, still has a handy lead although is enjoying “a breather” ahead of a potential surge on the Election’24 results. They spoke to BizNews editor Alec Hogg.

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Highlights from the interview

In a bi-annual investment challenge, Alec Hogg moderates a discussion between Magnus Heystek and Pieter Feleun, who have invested 500,000 Rand each in offshore and local markets, respectively. Despite a rough start, Magnus’s offshore investment has rebounded, now close in value to Pieter’s local portfolio. Magnus notes the unpredictability of markets, emphasizing the cyclical nature of returns and the impact of currency fluctuations.

Magnus cautions against the current trend of South African financial advisors pushing offshore investments, arguing that the high returns of the past decade may not be sustainable, particularly in the overvalued American market. He acknowledges slight improvements in South African economic indicators and suggests there may be good value locally, despite inherent risks.

Pieter echoes the importance of diversification, explaining that his balanced portfolio, with substantial offshore and onshore assets, has performed well. He stresses the necessity of maintaining diverse investments to mitigate unpredictable future market conditions. Pieter’s portfolio includes significant allocations to hard assets like gold, as a hedge against inflation, and emerging market bonds for yield.

The discussion highlights that investment strategies should be tailored to individual needs and risk tolerance, with a balanced approach being ideal. The competition underscores the principle that diversifying investments across different markets and asset types can provide stability and protect against market volatility.

Edited transcript of the interview ___STEADY_PAYWALL___

Alec Hogg (00:09.614) Well, it’s our biannual check-in on the local vs. offshore investment challenge. Magnus Heystek has invested R500,000 offshore on behalf of our mystery investor, while Pieter Viljoen has invested the same amount in South Africa. We’re getting an update today as we approach South Africa’s election. Maybe our gurus will share their thoughts on the election as well.

Alec Hogg (00:45.038) Good news, Magnus, your investment has caught up and is now close to Piet’s, both in positive territory for the first time since we started.

Magnus Heystek (01:04.849) Good morning, Alec. Good morning, Piet. Initially, my investment struggled as the rand strengthened and offshore markets dropped. Piet was ahead by 40-50%, and many thought the race was over. Markets are cyclical, and timing is crucial. Offshore markets have rallied since mid-last year, driven by tech stocks and the Magnificent 7, bringing my investment into positive territory. Currency fluctuations are significant; the rand has moved from R19.40 to R18.40 recently.

I’ve been cautious about the current enthusiasm for offshore investments promoted by many financial advisors and companies in South Africa. The returns seen over the last decade, particularly in the US market, are unsustainable with high PEs. South African investments are offering good value despite the currency risk, especially with some macroeconomic improvements.

Alec Hogg (05:08.782) At the business conference in London, Sean Peche spoke about market cycles, likening them to a pendulum. Magnus, who has been bearish on South Africa, seems to be seeing some positive signs now. Piet, your investment is slightly ahead, but how do you see things moving forward?

Piet Viljoen (06:08.671) My investment is resting after a fantastic period from 2021 to 2023. The client has benefited from diversification both offshore and onshore. The future is uncertain, so a diversified portfolio is crucial. Valuations of our stocks are reasonable, and there are some positive signs in South African markets.

Alec Hogg (07:47.15) Before returning to Magnus, you mentioned not focusing on the election results. However, avoiding a two-thirds majority for socialists and preserving the constitution would likely be seen positively by the investment community.

Piet Viljoen (08:23.487) Too many small parties are causing confusion, leading to messy coalitions post-election. This creates an uncertain environment.

Alec Hogg (09:12.974) Our audio is a bit messy. Magnus, given the election uncertainties and potential improvements in South Africa, how do you view the future?

Magnus Heystek (10:01.329) We can’t predict the future with certainty. My view wasn’t anti-South Africa but pro-US and pro-Nasdaq until about 2016. Since then, downgrades and other issues have made it a South African issue. Foreign capital outflows have been significant, but there might be triggers for improvement, like better performance from Eskom and port de-clogging. Smart money looks ahead to potential improvements.

Alec Hogg (13:17.582) Given Nvidia’s recent 250% rise and our focus on exponential companies, what would you do with a similar portfolio?

Piet Viljoen (14:07.423) I would replicate the worldwide flexible fund I manage, which is 80% offshore, 20% onshore, underweight US stocks, and includes hard assets like gold. It aims to provide robust returns with low volatility, catering to those who want to maintain their wealth rather than seek high returns.

Alec Hogg (16:23.246) Explain the 25% allocation in precious metals.

Piet Viljoen (16:27.455) It’s primarily in gold to protect against inflation. Regulations limit direct physical gold to 10%, so I’ve included gold streaming companies and other hard assets. This provides protection and reasonable returns.

Alec Hogg (17:21.166) Do you stay invested to maintain wealth after significant gains, like from $200,000 to $600,000?

Piet Viljoen (17:32.383) Investing should be forward-looking. High past returns don’t guarantee future performance.

Magnus Heystek (18:05.297) Financial advisors must consider individual client needs and risk tolerance. Some clients can’t handle volatility, so we might recommend no offshore exposure. Each investment strategy is tailored based on detailed analysis and discussion with the client.

Alec Hogg (20:15.566) I like that. Piet also suggested a small allocation in crypto as a form of insurance, which has worked well for us. Are your precious metals investments in physical or shares?

Piet Viljeon(20:58.079) Mostly physical, but unit trust regulations limit this, so I also include gold streaming companies and other hard assets.

Alec Hogg (21:58.19) Thank you, Piet and Magnus. Just to remind everyone, this competition is real, with each having R500,000. Piet’s investment is now at R550,000, and Magnus’s is catching up. The primary lesson here is diversification. Don’t put all your eggs in one basket. I’m Alec Hogg from BizNews.com.

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