The world is changing fast and to keep up you need local knowledge with global context.
The Johannesburg stock market has perked up this year, sparking a fresh wave of attack on investment advisors who have recommended offshore diversification. The most high profile of these advisors is Magnus Heystek, who has been a household name since the 1980s when, as an award-winning finance editor, he introduced and developed the concept of demystifying personal finance to SA. His ‘Making Money Made Simple’ is on many bookshelves, as are his other books on investment topics. Heystek, who is a keynote speaker at the BizNews Investment conference in Spring, has built a hugely successful investment company in recent decades: Brenthurst Wealth Management manages about R14bn of assets on behalf of individuals. He continues to share his knowledge and insights, based on deep research, freely through his columns and appearances on radio and television with a view to empowering individuals to make the right choices with their money. In this article, Heystek lifts the lid on how individuals in the mainstream media and their commercial partners – dependent on sponsorship and fees from companies with a vested interest in keeping your funds in SA – censor the view that offshore diversification is necessary and promote ‘local is lekker’. – Jackie Cameron
Offshore investment advice: Egg on face or caviar on plate?
By Magnus Heystek*
Earlier this month Business Day published an article by respected columnist Stuart Theobald with the headline “Rocketing JSE leaves offshore advisors with egg on their face”. Now I know that columnists do not write headlines, but the body of the article made it very clear that Theobald is not a fan of offshore investing, as can be seen from the following sentence: “So next time the ‘anywhere but SA’ bandwagon comes charging past, see it for what it is: a creaking wreck filled with those who make a living selling the negative story.”
BizNews was quick on the draw and arranged a personal finance webinar on Friday the 16th of April to which Dr Theobald was invited, but he declined to participate.
Nowhere in the article was I mentioned by name but there were enough comments below the article on BD and in tweets in the day following to ensure that I was seen as the main driver of this “creaking wreck”, a poor analogy if ever there was one.
I therefore feel compelled to put this whole debate in context. I leave readers to decide for themselves
But forgive me, as Mark Twain once said, for writing such a long reply as I don’t have the time to write a short one.
Straw man argument
It is an astonishing article in many ways, least of all the “straw man” argument deployed, for reasons I cannot understand, to the extent implying that certain financial advisors went around the country urging investors to cash in all when the rand was R19,35 to the USD and to take it offshore, thereby missing the 80% upswing that followed in the year thereafter. Boo-hoo, you all have eggs on face and should be ashamed at yourselves.
I am not aware of any financial advisor who went around publicly making such recommendations; neither did I or anyone at my company.
The article fails to mention the upswing in equity markets all over the world during the same period, with some offshore sectors rising more than 100% in USD terms.
But first some history.
I have been advising and managing offshore investments ever since I started my first advisory business way back in 1994, even before it was legal for South Africans to have offshore investments. I also saw, in the run-up to the eventual dot-com crash in 2001, how a diversified global portfolio can protect wealth and protect asset values during times of great uncertainty.
I perhaps had a more global view of the world than most local advisors by virtue of being a financial journalist since 1976. While finance editor of The Star from 1986 to 1995, I also had the privilege of attending several World Bank/IMF conferences and many others as well and also ran The Star Investment Club which I started. At these seminars we exposed local investors to investment luminaries such as Sir John Templeton, Mark Mobius and Sir Lord Rees-Mogg, co- author of The Sovereign Individual, a book which shaped much of my thinking and approach to personal investing.
I also witnessed how volatile the currency can be, soaring from around R13/USD in 2001 to R5,50 a mere 2 years later and crashing from R5,50 back to R15 a few yeas later. Even SAA at the time couldn’t see that correction coming and, hedging against further declines in the exchange rate, walked away with a loss of several hundred millions of rands.
During the great commodity boom, roughly from 2001 (when China joined the World Trade Organisation) to 2008, the performance of the JSE was of such a nature that it was difficult and downright reckless to recommend offshore investments as the JSE was riding the crest of the waves with a massive inflow of foreign capital and rising markets from 2002 onwards to end 2007.
There was no need for foreign investments and it would have been very hard to convince local investors — enjoying 20%+ returns per annum for 4 years running — to remit some money and invest some or all of it somewhere else. Such is the herd mentality of investors.
The Great Financial Crash of 2008 put and end to all this, and the previous seemingly unstoppable bull market in commodity stocks and — countries came to a shuddering halt. Commodity stocks plunged by anything between 40% to 90% in the blink of the eye, together with rand and almost every other asset class known to man.
The platinum sector — for those investors so enamoured by platinum stocks nowadays — fell by 80% within months. Therein lies a lesson which might be heeded again quite soon, as experienced fund manager Wayne McCurry from FNB Wealth warned on Business Day TV on 21 April during an interview with Giulietta Talevi.
Bull market in technology
Around 2010 world markets started settling down but that was also the start of the extraordinary boom of companies, already listed or soon-to-be listed on the Nasdaq and other US exchanges, which would in future become known by the acronym FAANG — a name given to this cluster of roaring internet companies by Jim Cramer on CNBC. (Facebook, Apple, Alphabet, Netflix and Google).
It was impossible to ignore what was happening in Silicon Valley as well as major developments in the global technology, health care and biotechnology sectors.
Returning from attending a conference in the US in 2011 where amongst others John Mauldin was a speaker, I realised that in order to become involved in these sectors one had to recommend an externalisation of SA assets into USD and other currencies. SA had no technology funds (the one Stanlib had was closed, due to “lack of interest” as the fund manager later told me).
It took some convincing to persuade local bittereinder-investors to sell some of their darling blue chips in order to invest in what at the time were considered “risky investments”. How the world has changed!
I even arranged for funds such as the Franklin Templeton Biotech fund and Fidelity Health Care fund to be placed on the Momentum platform and assisted in getting approval by the then Financial Services Board in order to market these funds legally to local investors.
But as the outperformance of US markets over the local market kicked it, it became easier over time to recommend offshore investing. At first the recommendation was a pure diversification play. But from around 2014 onwards it became more than that. It became a reaction to the deteriorating local political and economic/financial conditions which were slowly but surely creating havoc on the economic fortunes on all in South Africa.
Some of those early investors in technology and biotechnology have made returns in excess of 1,000% in rand terms over the last 10 years!
Mainstream media: Censoring offshore investment advice?
I personally felt that the mainstream media was under-reporting the rapid decline of SA and sponsored, at great expense, three annual investment conferences in conjunction with Moneyweb — where I was a resident columnist at the time — called SA Quo Vadis? –- which took place countrywide in 2015, 2016 and 2017. Speakers at these conferences included myself, Dr Frans Cronjé from the IRR, Ryk van Niekerk (editor of Moneyweb), economist Mike Schussler and political analyst Nic Boraine, amongst others. Speakers had no brief from me and they had total freedom to express their views.
I urged attendees to consider some degree of offshore investing, considering what I was perceiving to be unfolding in South Africa.
Not every-one agreed with me. Moneyweb, for instance, although a media partner, never published anything on the seminars afterwards. Other media outlets, such as BizNews, picked up some newsworthy material.
I was of the view that something deeply ominous was happening in SA which would have damaging long-term consequences, not only for the currency and the JSE, but also for the fabric of wealth-creation. This was at the height of state capture, cadre employment and the subsequent wholesale looting of state coffers. In fact, much of what is being ventilated at the Zondo- Commission in recent times was predicted to a certain extent during the seminars.
Even Clem Sunter, one of speakers, alluded to this when he said “ when the new political leaders took over the financial controls, they didn’t realise how much money was flowing through the system which could be stolen”. And hence was born the concept of tenderpreneurs…
I came way from these seminars deeply troubled by my own findings and some of the revelations by the other speakers.
I moved all my own money that I had at the time into offshore markets. I couldn’t be on record as saying investors must take my advice and then not do it myself.
I increased my urgings for investors to increase their offshore exposure, but never on the basis of “sell and head for the hills”. It was always within the parameters of risk profiles, personal objectives and tolerance to risk.
What is undisputed is that foreign investors were heading for the hills. Outflows from the JSE over the past 5 years is now in excess of R500bn.
Neville Chester, fund manager from Coronation, last week was quoted on Citywire as saying that without a return of foreign investors the JSE is likely to continue to struggle, despite the very nice recovery over the past year.
Some investors took my advice 100% while others did not. My comments on radio and in articles didn’t endear myself to local fund managers, who have a vested interest in keeping assets from flowing away. Invites to lunches and golf days dried up. I was frequently attacked for my views, either in public and also in the comments section beneath some of my articles. They make for some interesting reading now, many years hence.
I think the best one was a certain Milo (a pseudonym, no doubt) who said: “I would rather take investment advice from my tea-lady than Maggie…”
Even the Financial Mail described me as Dr Doom while the finance writer from Sake-Rapport, one Nico van Gijsen, urged his readers to remain to ignore my views, on the basis that “alles sal regkom”.
Offshore investment returns
Over any period ranging from 10 years through to 2 years the offshore returns have been double and even treble the returns of the local market.
It’s only on a one-year basis — a base effect created by the very weak rand on 20th March 2020 — and a sharp rebound in all markets, particularly platinum shares from October onwards — that the JSE moved to the head of the performance pack for a brief period. But remember Wayne McCurry’s word in this context. Platinum and commodity shares are notoriously cyclical.
Market returns over 10 years
Last week New World Wealth (NWW) released its latest survey on “wealth” in South Africa. It showed that, up to end October last year, the JSE over a 10 year period returned -12%. Since then the impressive upturn in the JSE — driven by commodities — has now pushed up the 10 year number to zero over 10 years.
NWW is normally very upbeat on SA’s prospects but it too could not ignore the financial calamity that has befallen the country, and even many of the rich.
Decline in global wealth
The same report alludes to the fact that the wealth of the average South African has declined by about 25% in USD over the past 10 years. This figure, in my view, is conservative as I have calculated a much larger decline in the global wealth. The potential pool of local consumers who can still spend freely on dollar-based items such as motor cars, Gucci hand bags, cell phones and overseas travel is rapidly diminishing. NWW estimates that SA now only has 38,800 HNWIs (High Net Worth individuals with liquid assets in excess of $1m).
Ten years ago the number was 48,000 — which means that SA has now lost about 20% of its wealthy people in a decade, either to emigration or to declining fortunes. If you don’t believe me, pop down to the local BWM or Mercedez Benz dealerships. Top of the range cars are out of reach for all except the very rich.
A great number of local investors who previously made their fortunes in property (on paper, that is) have seen the rand and dollar value of their personal wealth go up in smoke. Listed property shares are down anything between 50 and 90% and the same has happened in the unlisted space.
Even the previously buoyant Atlantic seaboard has gone deathly quiet, with sales of R10m and above exceedingly rare.
Over the past 20 years the number of listed companies on the JSE has declined from above 600 to below 300. Almost every week there is news of yet another company, particularly small and medium sized companies, planning to delist.
At the same time the JSE market capitalisation is dominated by the Naspers/Prosus-duo, which accounts for about 25% of the total market capitalisation by virtue of its $32 million investment into Chinese internet giant Tencent 20 years or so ago which has turned into something like R1,5 trillion.
While the investment has been one of the most successful investments of all time, does it create a concentration risk that cannot be ignored.
Now we come to crux of the matter: how would you feel if your wealth manager, despite the overwhelming evidence to the contrary, still recommends you put 100% of your pension or investment portfolio into a stock market that has:
(a) not produced any dollar-based value in 10 years,
(b) has been one of the worst-performing stock markets over periods from 15 years up to and including 2 years, and;
(c) is faced with a slew of political developments such as EWC, which potentially could be very damaging to the growth prospects of the country and financial stability of the banks, amongst others.
Theobald ends his article as follows:
“So next time the ‘anywhere but SA’ bandwagon comes charging past, see it for what it is: a creaking wreck filled with those who make a living selling the negative story.”
I fail to conjure up images of a ‘creaking wreck’. What I do see in my mind is a group of investors based on objective and independent advice who have used their offshore allowance prudently to protect their global living standards, enjoying not only some eggs but also a bit of salmon and caviar from time to time.
*And finally: Stuart Theobald is chairman of Intellidex, a research company and also main-sponsor (in conjunction with Business day Financial Mail) of the annual Top Wealth Manager of the Year Awards. He is also one of the judges. He also happens to live in London.
My company Brenthurst Wealth, of which I am a director, has been the winner of the Top Boutique Wealth Manager award in 2017, 4th in 2018, runner up in 2019 and winner again in 2020. No other company has had such a constant performance, a great deal which is based on feedback from clients. The entries for the 2021-edition of this competition close at the end of the month.
I need assurances from Dr. Theobald that his apparent abhorrence for advisors who recommend offshore investments does not influence his judgment and therefore our fair chances in this year’s competition. In the absence of that, would Brenthurst be forced to withdraw our application which has already been submitted?
We hope this won’t be necessary.
Offshore investment advice: Serving caviar
For more on whether you should invest offshore, you can hear insights here, at the BizNews Finance Friday webinar.
For more insights on offshore investment advice and diversification, see:
- Independent advisor Magnus Heystek on govt plans to use your pension to pay for SA infrastructure: Regulation 28 proposals
- Magnus Heystek: We got lucky! Commodities run saved us from tax pain – but SA is still in deep trouble
- Does SA have any good asset managers? Here’s why their investment performance is so dismal – Magnus Heystek
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