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Johannesburg - As international soccer fans flock to South Africa to enjoy the 2010 FIFA World Cup, it should serve as a reminder to investors that the world is far wider than simply those stocks available on the JSE.
Greg Hopkins from local asset management firm Alphen Asset Management alluded to it in his recent monthly commentary. He pointed out that South African investors may be besotted with the likes of retailer Shoprite - which trades on a 17 times price to earnings (PE) multiple and a 3% dividend yield - but ignore global giant Tesco, which trades on a 12 PE and a 3.5% dividend yield.
Hopkins wrote: "Some larger capitalisation developed market stocks can provide a relatively cheap entry into emerging market growth. For example, a company like Unilever has over 50% of its revenues in the emerging markets, a market position that has been built up over more than a hundred years. In fact, Unilever was first incorporated in South Africa in 1904. How many businesses are still around in South Africa from the early 1900s in their present form?"
There is also a perception among some local investors that international stocks do not necessarily deliver strong dividend flows, preferring to retain the dividends for investment in growth. However a glance at the dividend yields of the Standard & Poor’s 500 index shows that no fewer than 37 stocks offer a yield greater than 4.5%.
These include well-known international names like Verizon Communications, Altria, Eli Lilly and Bristol-Myers Squibb.
Feet on the ground
Much like a tourist will only get to know South Africa after having set foot in the country, so investors may be best served by following international asset managers which offer an international portfolio and have a research team to track stocks in other countries.
In the last five to 10 years there has been an explosion of retail unit trusts giving investors access to international markets.
These have been a bit of a mixed bag for investors as local indices have outperformed international counterparts. The strength of the rand in the last few years has also hurt investor returns as the funds remain rand-denominated.
For example, the Sanlam Investment Management Global Best Ideas Feeder Fund, managed by Kokkie Kooyman, lost about 26% of its capital over the last three years, while RMB Global fund tanked 38% and the Old Mutual Global Equity Fund lost 36%. Even the highly-regarded Allan Gray Orbis fund lost 12% over the last three years in rand terms.
The alternative is to go direct and buy shares through a brokerage with access to international markets.
Paul Theron from asset management firm Vestact said there has been a "modest uptick in interest, but it is certainly not a stampede".
He said many locals think investing in international stocks is too complicated, and there is a perception that US markets differ a lot from the JSE. However, the reality is that the JSE’s All-share index tracks the S&P500 very closely.
He also points out that through media coverage on television and the internet, there is a lot of information on blue-chip shares.
Theron concludes: "With offshore equity investments, we believe that clients should play it safe, and focus on blue-chip multinational companies with sound balance sheets in growing industries.
"Sticking with the big trends increases your chances of long-term success, since most of the surprises should be positive ones. We would only advise investing in a small company if we had specific insight into their prospects, or were familiar with the company management."
- Fin24.com