KEEP UP TO DATE WITH ALL THE IMPORTANT COVID-19 INFORMATIONCOVID-19 RESOURCE PORTAL

FANews
FANews
RELATED CATEGORIES
Category Investments

Technology, healthcare and electrification: the offshore investing themes SA investors should capitalise on

17 June 2021 Kathy Davey and Dr James Cooke, Ashburton Global Leaders Equity Fund

Over the past five years investors have achieved about 5% greater annualised rand returns by investing in the FTSE All World Index than the FTSE JSE All Share index.

These higher returns have also been achieved with lower volatility of returns.

It’s always a good idea to diversify your equity assets offshore to gain access to fast growing economies, global trends and often most importantly, some great sub-sectors not available on the Johannesburg Stock Exchange (JSE).

The JSE All Share Index is heavily weighted to basic materials stocks such as Anglo American which by extension means the JSE investor is exposed to Chinese economic demand.

Interestingly, when it comes to technology exposure, the JSE and the FTSE All World Index have similar exposure, but South Africa’s exposure is almost entirely represented by Naspers, which holds a large stake in Chinese company Tencent.

Investors in the JSE may not realise just how much exposure they have to just one country.

The FTSE All World Index by contrast comprises a much wider mix of technology companies, many of which are exciting growth stocks such as the renowned FAANG stocks - Facebook, Apple, Amazon, Netflix and Google (Alphabet). However, there are also many smaller highly innovative technology companies globally covering all areas of hardware, software and services.

Healthcare is also underrepresented in the JSE All Share Index.

Healthcare brings an important balance to any portfolio: it is inherently defensive and very well placed to benefit from ageing populations and ever increasingly longevity. People are also becoming increasingly health conscious and tending towards greater self-medication.

We also favour semi-conductor chip companies which are largely centered in the US, Europe and Asia.

There is a global shortage in semi-conductor chips, partly driven by supply disruptions and behaviour shifts from the pandemic. The global lockdowns have created spiking demand for personal electronics such as laptops and cellphones. In addition, growth in digital transformation and e-commerce has driven demand for data centres. And 5G is also spurring demand for new phones; its applications are still only in its infancy.

Longer term, the secular trend of digital transformation, the Internet of Things (IoT), data centres, EV (Electric Vehicle) and autonomous vehicles and the rise of artificial intelligence will provide a strong tailwind for this part of the market.

To take advantage of this trend, we have invested in South Korean Samsung Electronics, which is the company with the highest market share of semi-conductor memory and is also a manufacturer of leading-edge process chips for third parties.

We have also invested in Dutch company NXP Semiconductors which is focused on the automotive semi-conductor chip part of the market.

The shift away from fossil fuel also presents a thematic investment opportunity. Over the next 20 years, global electricity consumption is forecast to grow 86%.

It means ‘green’ generated electricity will have to connect to grids across the world. The rise of EV cars means commercial buildings will need to be retrofitted to enable charging capacity of far greater numbers of cars. Data centres are also very energy intensive and need to be designed in an energy efficient way which increases the electrical content of these centres.

To play in this space, we have invested in Eaton Corporation, an American multinational power management company.

These themes are expected to drive prices and attract money flows for years to come. South African investors should look more broadly than the JSE to take advantage.

Quick Polls

QUESTION

Healthcare brokers have long complained about inflation-plus medical scheme contribution increases; but pandemic may have changed things. What will pandemic-induced changes in hospital utilisation do to medical scheme contribution increase patterns?

ANSWER

Below inflation increase for 2022, then back to inflation-plus
Long-term trend of below inflation increases
Inflation-linked hikes for 2022, then back to inflation-plus
This is a 2-year hiccup, inflation-plus increase trend remains in place
fanews magazine
FAnews June 2021 Get the latest issue of FAnews

This month's headlines

Broker and insurer collaboration should not be a one-way street
Running on outdated systems… There's risks
Policy wordings with respect to COVID-19
Death or divorce... how best to split assets
Ethical investing… principles and moral codes
Portfolio positioning will serve investors well
Subscribe now