Finweek_English_Edition_-_March_19,_2020__

fundfocus last word

28 finweek 19 March 2020 http://www.fin24.com/finweek

OUTLOOK

By Leon Kok

f

und Focus has long held that the average

investor in South Africa should have 30% to

70% of their liquid assets invested offshore.

We haven’t detracted from that view.

The reasons in the current domestic

economic climate are all too obvious, ranging

from political uncertainty and gross public

mismanagement to the longest downward

decline in the business cycle since the Second

World War. The value of the rand relative to

the US dollar, for instance, is down two-thirds

over the past 20 years.

In the accompanying table we feature

eight rand-based global general equity

funds deserving of consideration. The best

consistent performer has been the Old

Mutual Global Equity Fund, managed out of

London, with a 19.7% annualised return over

10 years. Relatively close on its heels are its

counterparts; the Allan Gray Global Orbis and

Coronation Global Opportunities feeder funds.

I was rather taken aback recently when

one prominent investor told me that she had

sold out of the Old Mutual fund because

she had been advised that it had become

overvalued. However, her advisers seemed

to have missed the point that its portfolio

managers place considerable emphasis on

managing country and sector risk – and

focus primarily on developed countries.

Furthermore, investment in these funds

should be a minimum of five to seven years.

True, uncertainty reigns in any and every

market, but global themes undoubtedly

offer significantly superior long-term

investment opportunities than remaining

ensconced in SA. The SA listed market

makes up only around 1% of the world’s

market capitalisation, and there are only 352

companies on the JSE. This compares with

over 43 000 companies listed on exchanges

elsewhere in the world.

Consider further that during the past

decade the S&P 500 delivered a 250% total

return (in US dollars) and global equities have

more than doubled. Last year alone the

S&P 500 rose 28%. Moreover, most top-

rated global funds focus on numerous

broad, long-term global themes that present

significant positive investment opportunities.

In many cases these are uncorrelated with

traditional equity indices.

Offshore exposure still key

Leading global equity funds remain promising as political impediments fade, and business confidence holds up.

According to a recent Bloomberg

study, these are the base cases for

the top ten international investment

houses going forward:

Bank of America: The trade war remains

at the core of our macro forecasts, while of

course, the 2020 US elections approach, but

we remain modestly optimistic.

Barclays: We expect a tepid recovery

to uninspiring trend growth, but with

diminished economic and policy risks.

BlackRock: Growth should edge higher

in 2020, limiting recession risks. This is a

favourable backdrop for risk assets.

Citi: Risks may still be tilted to the downside,

but we are not forecasting a global (or US)

recession in 2020. We forecast that global

growth will settle at around 2.7% year-

on-year in both 2020 and 2021, as global

manufacturing activity rebounds.

Columbia Threadneedle: There is unlikely to

be acceleration in growth and we are equally

unlikely to see a deep recession.

Fidelity International: The world will avoid

a recession in 2020. The earnings outlook is

improving, but US election risk remains high.

FUND LAUNCHED MARKET

VA L U E

EQUITY

COMPOSITION

10-YEAR

ANNUALISED

RETURN

5-YEAR

ANNUALISED

RETURN

Old Mutual Global Equity May 1995 R17.2bn US, Canada 63.2%;

Europe 17.1%

19.7% 14.1%

Allan Gray Global Orbis

Feeder Equity Fund of

Funds

January 1990 R19.9bn 91% in 58 holdings 15.6% 12.8%

Coronation Global

Opportunities

Feeder Equity

Fund of Funds

May 2008 $2.34bn 92.1% in 7 funds 15.6% 8.7%

Stanlib Global Equity

Fund of Funds

(underlying Columbia

Threadneedle)

Market Class 2004 R3.62bn 93.26% (US 53%, UK

7.25%, France 5.4%)

14.84% 12.8%

Investec Global Franchise

Fund of Funds

July 2009 $5.9bn 93.3% 10% 8.5%

Nedbank Investments

Global Equity Fund of

Funds (underlying Veritas

AM)

Jan 2013 R12.5bn 87% -- 13.6%

BlueAlpha BCI

Global Equity

September 2014 R721m 80% plus -- 13.6%

PSG Global Creator

Feeder Fund

June 2013 R7.6bn 94.4% -- 12.8%

Goldman Sachs: Risky assets benefitted

from central bank easing in 2019, but now

growth will need to drive returns. We expect

moderately better economic and earnings

growth and therefore decent risk returns.

JP Morgan: Looking into 2020, we believe

that the positive drivers will continue, at

least for the first half. Some negatives could

start dominating later, making 2020 a

proverbial year of two halves.

Schroders: Bond yields and economic

growth are likely to remain subdued in 2020,

with equities remaining relatively attractive.

UBS: We expect a recovery in 2020 but a

much weaker one than consensus.

Broadly, on the downside, one needs

to watch out specifically in the short term

for the economic and market impacts of

the coronavirus, a Democratic presidential

victory in the US, and those economies close

to recession (such as Germany, Japan, the

UK and Australia).

A change in the US regime will inevitably

result in higher healthcare and social welfare

costs, lower profit margins and slower

growth. ■