Being ‘otherwise’ can be a wise investment move

Being out of step and in the money can be the same thing in the changeable world of international investment.

The point was recently demonstrated by offshore equities – an area of contrarian opportunity identified some weeks ago by STANLIB, the country’s top unit trust company, and Paul Hansen (pictured right), its director of retail investing.

He recently alerted STANLIB intermediaries and clients to the fact that several indicators pointed to extreme levels of investor pessimism.

Instead of seeing this as reason to batten down the hatches and steer clear of equities, he interpreted doom and gloom as a strong signal to start investing.

Hansen concedes: “It may be contrarian, but there are many precedents for picking the moment of maximum pessimism as the moment of maximum profit potential.”

To substantiate apparent perversity, he likes to quote billionaire investor Sir John Templeton (one of the pioneers of globally diversified unit trusts).

In one of his regular STANLIB investment messages, Hansen targeted South Africans who already have money offshore for a mid-March alert in which he noted: “The moment of maximum fear coincides, fascinatingly, with the moment of maximum opportunity.

“Sir John M Templeton said many years ago ‘To buy when others are despondently selling and to sell when others are greedily buying requires the greatest fortitude and pays the greatest reward’.

”US, European and British shares are trading 15-20% below their peak of eight years ago. Wow, what an opportunity!”

Within two months, those who took the hint were 10.7% better off in US dollar terms.

Being out of step one day and into profit the next is typical of the Hansen approach and underpins a long record of award-winning success.

In May’s Morningstar Awards, his STANLIB US Dollar Bond fund of funds took category honours for top risk-adjusted performance over three years.

In the last Raging Bull Awards, category honours were again won by this STANLIB US dollar Bond portfolio and another product managed by Hansen, the STANLIB European Fund of Funds.

The STANLIB International Conservative Fund of Funds and its offshore version, the Standard Bank Offshore Managed Conservative Fund have also won industry honours with Hansen at the helm.

International orientation is no accident. Paul Hansen holds a US stockbroker’s licence and spent nine years in the USA as a stockbroker and financial consultant with sales and portfolio management responsibilities. He returned to South Africa in 1993 and has been at STANLIB over 12.5 years.

Time in a huge market like the States taught him that “the trend is usually your friend”, but “when corrections occur so do opportunities because value emerges”.

Being out of line with current sentiment can be thankless. In 2004-05, he agitated for greater international diversification by retail investors as the rand stabilised at around six to the dollar. Unfortunately, many local investors had lost out during the rand’s 2002 recovery and internationalism was a hard sell.

Similarly, he argued for higher domestic equity allocations in 2003-04, but after three years of woeful share market performance, the advice often went unheeded, though five years of equity gains were to ensue.

Hansen’s positions on trends are very public as he contributes a weekly commentary on local and international investment opportunities to STANLIB advisers and clients. In addition, he is a regular roadshow speaker; in effect, the ‘investment adviser’s investment adviser’.

Says Hansen: “Our job is to add value, and you don’t add much if you simply echo what everyone else is saying. So I have no trouble with my contrarian positioning.

“Tremendous wealth enhancement is achieved by those who stay in the market and the biggest gains occur at the point of maximum pessimism. History says that, not Paul Hansen. The good listeners tend to make good profits.”