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Brenthurst remains bullish on offshore investment

Jul 05 2019 09:44
Thought Leadership - By Brenthurst Wealth
Brenthurst Wealth

Brenthurst Wealth strategically advises between 50% and 80% offshore allocation across discretionary portfolios

By Brian Butchart, Managing Director of Brenthurst Wealth

Brenthurst Wealth Management has been advocating a healthy exposure to foreign markets to local investors for more than 8 years now and continues to be a cornerstone of our investment strategy. Depending on individual circumstances, we are strategically advising between 50% and 80% offshore allocation across discretionary portfolios, in some cases more.

The primary reason for this bullish push abroad is the concentration risk the South African market poses to portfolios. The JSE is a tiny market, representing less than 1% of the global investable universe. Only 10 shares listed on the local bourse make up between 50% and 60% of the JSE All Share Index. Technology giant, Naspers, makes up 20% of the local index, alone.  Taking money offshore offers access to a multitude of diverse industries, listed stocks, geographies and themes not available back home.  The local market also diverged from lucrative international growth rates over several years, resulting in pedestrian returns at best.  Those invested in international markets faired far better than those primarily invested in the local market over 1, 3, 5 and now 7 and 10 years if you compare the JSE ALSI vs the MSCI World index and S & P 500.

Brenthurst Wealth


Investors who did not increase their offshore investment exposure in recent years suffered a tremendous opportunity cost and, in some cases, have not seen any real increase in the real value of their holdings in rand terms.

LOCAL VALUATIONS

We are not denying valuations are attractive, however corporate growth prospects remain grim in an environment of pedestrian economic growth projections, and political uncertainty.

First quarter GDP growth of -3.2%, the largest contraction since the global financial crisis 10 years ago, showed this will not be an easy feat.  

The President’s State of the Nation speech, advising on yet another bailout for Eskom did investor confidence no favours either, as he failed to address the serious structural concerns around the state-owned enterprise. 

The JSE ALSI index can only gain momentum when company earnings improve. Earnings will only improve when consumer confidence returns. Consumer confidence will only return when structural reform is visible. 

Unless these structural concerns are addressed, we find it difficult to see the catalyst to change the current poor trajectory of the local market. And therein lies the value trap!

Foreigners have sold down, almost R500 billion from our local stock market over the last 5 years and continued to sell an additional R28 Billion in the first quarter of 2019. 

HOPE

Contrary to belief, we do remain hopeful the SA economy turns around, but that can only happen with definitive action and commitment from government to structural reform, before we see any opportunity to buy back into the local market. Currently, we simply don’t see it, and therefore remain cautious over the medium term! 

Instead, our appetite for homegrown investments currently are the historically “unsexy” asset classes.  However boring income funds may seem, some of these funds delivered Stellar performances with far less risk. In fact, most income funds beat money market, inflation, almost all balanced funds and the JSE ALSI over 1,3 and 5 years. The Mi-Plan and Counterpoint enhanced income funds for example beat the JSE ALSI index over all periods comfortably and 12% and 9% returns from these two funds respectively seem pretty damn sexy to me!

Brenthurst

Brenthurst

Brian Butchart is the MD for Brenthurst Wealth: brian@brenthurstwealth.co.za

This post is written, sponsored and provided by Brenthurst Wealth for Fin24. 




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