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Reasons for investing offshore & options available to investors

09 September 2019 Marriott
Preston Narainsamy at Marriott

Preston Narainsamy at Marriott

In an uncertain global economic environment, investors are inclined to deviate from their financial plan and make impulsive investment decisions, often based on little more than an emotional reaction.

Globally, concerns around growth, a potential recession and intensifying trade wars have all weighed negatively on investor sentiment, and as a result, on market returns. Locally, the outlook for the South African economy appears to be even more pessimistic, as GDP growth numbers continue to disappoint and a sovereign credit-rating downgrade from Moody’s is becoming more imminent.

In this type of environment, the likelihood and cost of making incorrect investment decisions increases. As a result, investment outcomes become less predictable. In our opinion, the best way to increase the predictability of income and capital returns in volatile times is to invest in high-quality, robust companies whose growth prospects are largely unaffected by economic, political or technological disruptions.

Highest quality found offshore

In our view, these companies tend to be offshore businesses, typically listed on first world exchanges. In particular, large, well-established, blue-chip multinational dividend-paying companies such as Johnson & Johnson, Unilever, Nestle and Coca-Cola.

These companies are market leaders in their industries and have the best quality, strongest branded products that are integral to the lives of their customers. This gives them strong pricing power – the ability to increase prices without losing customers. With a global footprint and trusted brands, these companies are best able to capitalise on long-term trends such as consumerism, ageing demographics and the fourth industrial revolution.

Reliable dividends

The combination of the above-listed traits enables these companies to deliver reliable growing dividend streams over time. The graph below illustrates this by highlighting Johnson & Johnson’s ability to grow dividends through various financial crises.

By taking a long-term view and investing in quality stocks that deliver predictable income, the capital takes care of itself, as demonstrated by Johnson & Johnson’s share price. This is based on the well-known premise, that over the long term the primary driver of capital growth is income growth. Hence, if a company demonstrates the ability to deliver a reliable growing income stream, over the long term the capital value of the company will also grow reliably.

Attractive valuations

In a world of lower interest rates, these companies are becoming increasingly sought after. The graph below demonstrates the relative attractiveness of Procter & Gamble’s dividend yield versus the US 10-year government bond. What’s even more compelling is that companies like Procter & Gamble also have the ability to grow their dividends over time.

The table below illustrates the dividend history of what we consider some of the highest quality offshore stocks as well as current valuations.

Stock

Consecutive dividend increases

Current dividend yield

Historic Average dividend yield

Procter & Gamble

63

2.5%

2.4%

Johnson & Johnson

57

2.9%

2.2%

Colgate-Palmolive

55

2.3%

2.1%

Coca-Cola

55

2.9%

2.1%

Medtronic

41

1.9%

1.3%

Unilever

38

2.8%

2.7%

Attractive valuations

The world’s best dividend-paying companies are currently trading at attractive valuations and will likely serve investors well in a world of low-interest rates and slowing GDP growth. As a result, we continue to maximise our investor exposure to these companies across our portfolios.

Investors can access these companies with Marriott in two ways:

• Using their individual offshore allowance of R11 million per annum to invest directly into:
o Marriott’s direct offshore share portfolio (International Investment Portfolio), or
o Marriott’s international unit trusts
• Using Marriott’s local feeder funds and asset swap capacity, which invest directly into our international unit trust funds

Marriott Fund

Asset Class Description

Minimum Investment

Fee pa (Total Expense Ratio)

Total Return pa in £

(ending 31 July 2019)

1 yr

3 yr

5 yr

Share Portfolios

International Investment Portfolio – Income Growth

International

Equities

£ 25 000

0.75%

16.2%

8.2%

12.9%

International Investment Portfolio – Balanced

International Equities & Real Estate

£ 25 000

0.75%

14.1%

8.2%

12.8%

 

 

 

 

 

 

 

 

 

 

International Unit Trusts

First World Equity Fund

International

Equities

£ 20 000

1.46%

15.0%

6.6%

10.7%

International Growth Fund

International

Equities

£ 30 000

2.06%

7.4%

4.5%

4.5%

International Real Estate Fund

International Real Estate

£ 30 000

1.43%

3.7%

3.3%

3.3%

 

 

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