It’s also worth noting that since 2011 our local market has underperformed the world’s developed markets, as measured by the MSCI World Index, by 119% as the rand depreciated from R6.61 to R14.20 per dollar. Given the rand weakness and superior performance by developed market equities, our clients regularly ask us whether they should take more money offshore.
At our client roadshow in early 2011, we advised clients to shift their portfolios towards developed market shares given the over-valued rand at the time and relatively attractive valuations of these markets. This was met with some reluctance given that South African shares had outperformed developed markets by more than 500% over the previous decade.
The superior economic growth prospects of emerging markets relative to the developed world were also emphasised, while many investors remembered the painful consequences of moving money offshore at the worst possible time after the rand collapsed in 2001. Recent experiences and performances influence investor sentiment, but our investment philosophy takes us back to valuation/price as the primary consideration for investment decisions, while taking account of the prevailing trends and perspectives in the market.
In line with what we have advocated since 2011, our asset allocation portfolios have invested the maximum weight in offshore markets that prudential legislation allows. In our equity selection, we have tilted our portfolios towards ‘rand-hedge’ companies that derive the majority of their earnings offshore and away from so-called SA Inc companies whose fortunes depend on the domestic economy. This has benefited portfolio performance, but we continuously reassess our positioning.
The table below shows the past five years’ share performance and current valuation of five well-run rand hedge companies versus five well-run SA Inc companies listed on the JSE.
