FNB head takes bet on markets

2010-11-22 10:35

Johannesburg - As Ireland moved to accept a massive international bailout, one South African banker is backing commodity exchange-traded funds (ETFs) as the place to protect capital.

Commenting on micro-blogging service Twitter, First National Bank (FNB) CEO Michael Jordaan has taken a friendly wager with asset manager Paul Theron from Vestact that commodities will outperform equities.

Jordaan said he was happy to bet a case of wine that commodities would outperform equities over the next five years and investors were better off buying a balanced commodity ETF than equities. However, Theron countered that without dividends being thrown into the mix, the commodity punt would be a poor long-term investment strategy.

Ireland's bailout package announced on Sunday has so far had little impact on global equity markets with Asian stocks largely in the black, but there is some concern that it may encourage Portugal and Spain to follow suit.

If there is no orderly bailout of the region, it could spread fear to equity markets and light a further fire under commodity prices as investors seek hard assets to protect them from inflation and loose monetary policy.

With South Africa not having a dedicated commodity ETF, investors can still get the best of both worlds through Satrix40 or Rand Merchant Bank's (RMB's) BIPS40 product.

Resources, including oil and gas, made up more than 50% of the top 40 shares on the JSE and the dividends are paid out quarterly.

While Satrix40 is the better known of the products, the RMB Holdings [JSE:RMH] ETF - with a total expense ratio of just 0.22% - was recently identified by as the cheapest way of gaining exposure to the 40 largest shares on the JSE.

With Jordaan being a self-professed wine enthusiast, Theron will be hoping that shares continue to truck out their solid dividends over the next five years or he may need them to come good on the bet.

 - Fin24