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Your next offshore investment move: A roadmap of how to go about it
*This content is brought to you by Sharenet Johannesburg
By Martin Strauss*
Like me, I’m sure a lot of investors were caught unawares by #LadyRussiagate, just as the JSE was starting to breathe signs of life and things were beginning to look a bit more positive on the local front – from a market perspective anyway.
We have a lot of very well documented problems, and while we should remain optimistic, there are some very good reasons why you shouldn’t have your money here. Sharenet has been calling for having funds offshore for a long time, which is why most of our discretionary clients are sitting with more than 50% of their wealth outside of South Africa in some way, shape or form.
Sharenet has an array of direct and indirect offshore investment options. These include active and ETF-based model portfolios at different levels of risk for those who find the prospect of investing in fairly unknown markets daunting.
If you wish to find out more about the channels, structures and implications of “emigrating economically,” please refer to: Offshore Investing: Structures and Implications which outlines the mechanics as well as the advantages and disadvantages of the various options at your disposal.
For those who have followed the “local is lekker” theme and feel like you’ve missed the boat (given that the Rand has run away from us over the last two weeks), rest assured that the one thing we know for sure is markets overreact and mean reversion is real. We have seen it happen all too many times and this time is no different. We expect that the currency will come back to levels closer to fair value over the short term which in our view, is around R16.50 (or support levels around R18 as indicated below) considering central bank inflation targets and current interest rate differentials. We are also expecting a 50bp rate hike by the Reserve Bank on Thursday 25 May which should be supportive of this view.
Another positive of having waited to expatriate your monies is that the unprecedented rate hikes we have seen over the last year and a half have made short term cash attractive. With local money market rates on call close to 8%, one can afford to sit back and wait for the USDZAR to recover.
The long-term tendency of the currency, however, is clear as daylight. The rand will weaken by at least inflation/interest rate differentials over the long term.
For those of you who have been following my articles, you’ll know that I am a massive fan of the dollar-based investments in technology. Please refer to:
Why This Isn’t the Next dot.com Bubble: A Case for Buying Dollars, and Tech.
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Yes, this view took a beating last year, but we continue backing this horse. If you have a 5 -year horizon (which you should when investing in equities), ask yourself where you see the world at the end of that timeframe and invest in that.
The greenback naysayers are coming to the fore once again, and one cannot ignore the very real concerns: globalization is being replaced with protectionism because of reshaping trends in geopolitics and trade, public debt threatens to erode traditional Western power, and the ever-increasing divide between East and West.
But when all is said and done, the one thing that we know is that when there is uncertainty in the world, everybody will run back to what has worked for decades – dollars (and gold), which brings me to my next point.
Now that one has taken the first important steps in reaching your next investment destination and the monies are in hard USD currency over the next month or so, the question arises – what do I buy once it’s there?
Trackers and ETFs are always good options – on trend-setting themes like AI, robotics and ESG/Renewable energy sponsored by Vanguard or Sector Spiders (SPDR), but for those who want to take a bit more of an active approach, the following are our top picks and some of our current highest weightings in our active models:
Brookfield Asset Management
Brookfield Asset Management, which we’ve been touting as a buy for a long period of time, has a diversified asset base, sustainable cash flows, high profit margins and expectation of strong earnings growth due to the ability to deploy capital globally in sectors and industries setting the trend for years to come.
For a more comprehensive investment case, please refer to:
Brookfield Corporation: A diversified offshore play with strong prospects
Adobe once again one of our firm favourites – has done 10.43% YTD in USD terms and we expect it to continue to rise because of some very exciting recent acquisitions and a powerhouse in the software-as-a-service space.
For a more comprehensive investment case, please refer to:
Adobe Inc: Quality stock, and a BUY for the patient long term investor
New on our buy list is Newmont, a safe gold play with low marginal cost of production and high-quality gold deposits with limited political risk. It plays nicely into our bullish view on gold from a macro perspective and acts as a hedge in the event of further left-tail risks in global markets. This will be the topic of our next BizNews article.
Hopefully this high-level roadmap will provide some reassurance in view of the daunting investment environment we currently find ourselves in. The most important things are to keep a long-term investment horizon which will ensure growth over time and to stay diversified enough to prosper and/or protect during times of feast or famine.
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