The importance of developing a global asset portfolio
Diversification is one of the primary drivers of offshore investment and the development of a global asset portfolio. It allows for far deeper engagement across portfolios and can allow for a steady return on investment that’s worth the time and effort.
“As an emerging economy, South Africa carries a higher level of risk,” says Jonel Matthee-Ferreira, Head of Absa Multi Management. “Conventional wisdom holds that markets like Europe, the United Kingdom, and the United States are better options, however, the decision to invest offshore should be taken as part of an overall strategy. It should not be taken as a hasty step to escape political uncertainty.”
Offshore investment should look to steady investment into markets that are balanced against the remainder of the portfolio. Emerging markets, such as India, show potential, but too much exposure in this section of the market can be risky if the investor already has large local exposure. As Matthee-Ferreira points out, it is best to have a manager with a global mandate to consider the global alternatives while investing.
“The shares we have in South Africa are concentrated and the market is dominated by the top five,” says Matthee-Ferreira. “Investors will therefore benefit from putting money in both developed and emerging markets. An investor should subscribe to a wide range of portfolios that have been constructed by an equity manager who looks at the worldwide jurisdiction to determine where the funds should be allocated.”
“We invest in global fund portfolios and rely on managers to select the strongest companies that are the most attractive at this time. When we invest offshore, we have nearly all of our exposure in equities as this assures of protection against a very volatile Rand.”
South Africa is not the only country in a state of flux at this time. The UK is caught up in Brexit while the trade war between the US and China continues to impact across numerous countries and economies. One of Absa Multi-Management’s best performing asset managers is the UK-based Mundane with an interesting portfolio and philosophy focusing on preserving capital and generating superior long term returns through identifying shares with a focus on cash generation, long term and sustainability world leaders.
“Mundane has delivered excellent performance compared with local portfolio managers and has been our star performer for the past year,” says Matthee-Ferreira. “Good asset managers have experience in the industry and excellent personal relationships helps to identify them – they are hard to find.”
For the first time since 1936, over a rolling 10-year period, value investing has underperformed momentum investing. This means that many of our underperforming managers with a value style have excellent upside potential.
“Short term investments have more volatility through political remarks or events. It is important to ignore the noise and stay focused on investments – we have seen that outperformance emerge over the longer term,” concludes Matthee-Ferreira.