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A consistent approach to investing

Oct 17 2019 10:18
Simon Brown

Simon Brown, founder and director of JustOneLap.com.

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My preferred offshore exchange-traded fund (ETF) is the Ashburton Global Equity 1200 (ASHGEQ*). I like its small emerging market exposure of around 7%. While this does exclude Africa, my portfolio has plenty of home bias, so I get enough exposure to the continent.

But because I disclose my preferred offshore ETF, I get a lot of people asking me about other offshore ETFs.  

What about an S&P 500 ETF? Or GLODIV? Or even one of the MSCI developed market ETFs?

I’ve written about this before, but the truth is that they’re all great, with very small differences. For example, GLODIV also has a direct 7% in emerging markets – excluding Africa – but is more defensive due to its methodology. The MSCI and S&P 500 have plenty of indirect emerging market exposure, since the companies within the ETFs sell into emerging markets. Think, for example, of a company like Apple selling iPhones in SA, India, China and elsewhere. 

The question is, however, really more about which ETF will do better over the long term. And, of course, here the answer is simple: I have absolutely no idea. I fully expect one to do best, but likely not by very much. 

This concern is the hard reality of investing: We know nothing for certain about the future, except that it will arrive in time. 

But with individual stocks things are different. Two stocks in the same sector may on the surface look very much the same, but they could end up delivering vastly different returns over the long term.  

As an example: Over the last decade Pick n Pay has returned just over 58%, excluding dividends, while Shoprite* has returned almost 100%. This is a vast difference and shows that with stocks the details do matter. Sure, both have made money, but Shoprite is ahead by almost double. And that will have a serious impact on your portfolio returns and your overall net worth.

The lesson is simple. As a passive investor in ETFs, selection is important, but only inasmuch as broad strokes, such as: Should one have some offshore ETFs? If yes, how much of the portfolio? For me, the answer here is yes, and probably about 50%. (Albeit with a broad diverse offshore ETF you could make that your only ETF, going all-in 100%. Here “all-in” is very different because you are all-in for 1 200 stocks in the case of the ASHGEQ.) 

So, you should stress about your ETF portfolio less. You must ensure that it is diverse across geographies and sectors, and then you can forget about it.  

In my case, I have a monthly debit order, buying more ASHGEQ every month. Thereafter, I can keep half an eye on new ETFs and watch the total expense ratio. But the issue here is not around finding the best. Rather, it’s the consistency of investing for the long term.

It’s quite different with single-share exposure.  

Going all-in with a single share, or even sector, could be disastrous. What if you went all-in on Steinhoff before the collapse? 

Investing in shares means you need to be smart about the sector and know how the different stocks are doing in that sector, so that you end up with the winners and not the losers. (Sticking with the example of Pick n Pay and Shoprite: What if one went with Massmart, down 50% over the last decade?) 

This is why over half my portfolio sits in ETFs, where success is easier, almost guaranteed… But I’d never be so bold as to say anything can really be totally guaranteed. ETFs reduce the risk and let the investor sleep easy at night.  

Shares are the hard work that can go very wrong if you pick the wrong one.  

*The writer holds ASHGEQ and Shoprite. 

This article originally appeared in the 24 October edition of finweek magazine. Buy and download the magazine here or subscribe to our newsletter here.

investment  |  financial advice  |  invest

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