Page 29 - Waterfall January 2022
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proxy for future investment outcomes. far below 50% would suggest that
When valuations are similar, by all you are not optimally diversifying
means, go where there is growth. to manage portfolio volatility.
However, in the current environment,
valuations are so high in the uS SA still has plenty of benefits to offer
that our belief is that earnings will local investors from a tax perspective,
only allow firms to grow into their like tax incentives to local investors,
steep valuations – don’t expect retirement fund contribution tax
much further multiple expansion. deductions or tax-free investment
benefits. Investing locally is also
In contrast, South Africa is the Adriaan Pask often more cost-effective. In addition,
underdog – few retail investors one needs to consider returns on
expect much to happen here, and an after-cost and after-tax basis.
it shows in the ratings. Therein lies is seen as less attractive, it does not
the opportunity. Although much preclude other offshore investment don’t forget to consider
improvement is required to turn the destinations. Emerging markets are sector and issuer
economic fortunes of our country brimming with opportunities, and concentration
around, that is less so for its investment Europe is in a similar situation to One of the key concerns currently
landscape. Even a moderate surprise SA, with moderate upside surprises is that both the domestic and uS
to the upside will see ratings improve. set to deliver better returns. market are heavily concentrated
at the top. Domestically, we
Looking beyond economic Then there are the practicalities of have Naspers dominating at
growth and valuations regulations and tax incentives. While a 15% weighting, and in the
It’s not all about the investment the asset allocation in retirement funds uS, the Top 10 stock in the S&P
outlook. There are many other may be constrained to a maximum now account for almost 30% of
factors to consider. Let’s not forget of 30% in offshore equities, this the market capitalisation.
the first rule of successful long-term exposure is closer to 40% or 50%
wealth creation – diversification. when the offshore exposure via rand Data shows that sectors are not static
Offshore assets need SA assets and hedges is considered. According to but evolve, making it dangerous
vice versa. They work together as our calculations, the appropriate level to think your portfolio should
a team. Sacrifice the one, and you of diversification for discretionary mirror global weightings. In 1899,
sacrifice portfolio diversification. It portfolios is around the 50% level. the uk accounted for 25% of the
really is that simple. We always advise worldwide economy, but in 2019 it
a healthy balance, tactically tilted Levels far above 50% may introduce only accounted for 5.5%. In 1900,
towards the area of preference. excessive currency risks and reduce the rail sector was the biggest in
the efficiency of risk management. the uS and the uk, while today this
Also, remember, just because the uS On the other hand, an exposure too sector is nearly non-existent and
has been replaced by new sectors
Table 1: Factors affecting the decision to invest in foreign assets like health and technology.
No one-size-fits-all solution
Although it would make things easier,
unfortunately, there is no such thing
as one-size-fits-all financial advice.
Each person’s circumstances are
different. What we can confidently
say is offshore investing plays
an important role in terms of
diversification and risk management.
Any decision to invest offshore must
be taken in a considered and sober
manner. Contrary to common belief,
headlines are not a good predictor
of future investment outcomes.
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