By Simon Brownmarketplace invest DIY
PORTFOLIO MANAGEMENT
38 finweek 24 October 2019 http://www.fin24.com/finweekA consistent approach to investing
Exchange-traded funds provide access to a variety of shares, thereby decreasing the risk of the
investment. The secret, then, is to find those that will deliver over the long term.Photo: Shutterstock
m
y 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. ■
[email protected]
*The writer holds ASHGEQ and Shoprite.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.