In just ten years, Facebook founder Mark Zuckerberg has built a business worth $155 billion, which is nearly 13 times bigger than dual-listed insurance giant Old Mutual, a mainstay of the JSE with a track record that spans more than 100 years. This is one of the reasons why South African investors need to remember that the investment universe extends far beyond the South African borders.
While many South African investors and financial advisers were burnt in the early 2000’s when they went chasing a weaker Rand, which subsequently strengthened, this time it may well be different.
“The Rand is not the main reason to go offshore. The main motivator has to be to get into quality assets that you cannot get here,” says Paul Hansen, Director of Retail Investing, at Asset Management firm STANLIB.
While this may be the case, investors who bought into the offshore story in the early 2000s, have seen significant underperformance relative to the likes of the JSE over the same period. “I went offshore with my money in 2002 through STANLIB offshore offering, and only now is the patience starting to pay off,” says Hansen.
Going offshore
One of the major concerns for investors is the cost of taking money offshore.
“Yes and no. The Total Expense Ratio (TER) for offshore is about 2%, so it is not cheap relative to some of the domestic offerings. One of the things that has however changed over the last few years, is the ease of transacting and moving between funds,” says Hansen.
Where are the opportunities?
Emerging markets have been the favourites for global managers over the last decade with the Brazil, Russia, India, China and South Africa (BRICS) being popular and phenomenal outperformers. However, this trend has begun to change with growth prospects for these economies being scaled back. Many investors is recognising that blue chips listed in the US and Europe are offering great emerging market exposure, but on a lower risk premium.
Hansen adds that, “As a house, STANLIB likes US and Japanese assets. Japan in particular has broken a long-term downward trend which made the country unattractive.” Hansen is slightly more bullish on European equities than other managers within STANLIB.
European equities have shown resilience, and while earnings are coming off a low base and the risks involved in the sector have been diminishing, even higher-risk regions like Spain and Greece have started to show signs of an economic turnaround.
“People are worried about the likes of Thailand, Ukraine and Argentina and we are being tainted by the same brush,” he says when asked what to make of the uncertainty which shook markets in early 2014.
Skills are vital
Asked if there is one sector that he is watching out for in terms of his offshore investment decisions, Hansen says that he is - contrary to the STANLIB house view - more optimistic on the prospects for the resource sector. He points to the reaction of the share prices of global mining giants like Anglo American, Rio Tinto and BHP Billiton to poor data out of China in the middle of January 2014. “The global mining shares didn’t respond to the China number,” says Hansen adding this suggests that the share prices have factored in some of the Chinese slowdown.
While offshore looks attractive, one of the big challenges that face South African asset managers is making sure that they have the skills to cover a global marketplace.
STANLIB has strengthened its capabilities here by engaging Threadneedle Investments, an offshore asset manager and advisory firm. The appointed firm provides clients, based in South Africa, with an extra layer of specialist skills for its offshore franchise.
Hansen concludes that “the benefit to STANLIB clients is two-fold. On the one hand it is important to have offshore exposure with offshore skills, but on the other hand it is important to consider the costs. Threadneedle are very good in the Balanced Fund space and they are very effective at controlling costs.” This is definitely a win-win situation for the client, adviser and company.
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