We have never met but I have been reading your columns in Moneyweb for many years now. Some have been good, even great, while a small number have been poor, like your last one. It was not fact-based as your articles usually are.
I’m not quite sure what you were trying to achieve with the article. It notably lacked the usual rigorous analysis that you tend to apply to your articles. In this case you seem to have water-boarded the statistics until they have confessed to a crime they did not commit.
Normally, I would not have responded, but several of those who commented on your article identified me, incorrectly, as being one of those people – “cough-cough” – who recommended that investors “take all their money and invest it offshore” when the rand was R17 to the US dollar. Your article was well-read and shared among many people.
That left me in a bit of a quandary: ignore it, and the rest of the Moneyweb community will subconsciously agree with your postulation. You know the old saying that perception is reality. Or reply and try to put the whole issue in context.
What puts your article on a very weak foundation is the statement “those who advised investors to move all their assets offshore …”.
You fail to mention even one who made such a recommendation.
In today’s Googlised world, you should have been able to find at least one person to attribute this claim of yours to. It certainly wasn’t me as I was happily working on my sun-tanning skills on the beaches of Mauritius for most of December 2015 and January 2016.
I was not on air, didn’t write a column and had very little interaction with human beings during that period of time, when the rand went from R15 to R17 (briefly) and back to R15 in a matter of weeks. The rand only traded once over R17 to the USD, and that was an obscure trade in the Far East which went from R16.94 to R17.82 to R16.31 in two days, 11 and 12 January 2016.
The average rate for January 2016 was closer to R16 than R17 to the USD.
So in the absence of anyone actually making such a recommendation, one has to conclude that your starting premise is false – and that you needed to falsify it in order to prove what you set out to prove in the first place.
You then compound the falsity by making several gravity-defying leaps of logic, such as “those who advised investors to sell the rand also advised investors to sell RSA bonds.” Again, just one example would be nice. I am not a keen follower of bonds so, again, it wasn’t me …
The third misplaced assumption you make is the untested statement that “investors who took their money offshore probably invested in low equity managed funds.”
Do you have any statistic to back up this statement? My experience has been that investors have a significantly higher risk appetite when it comes to offshore investment, with an exposure of 60-70% equities in most cases.
Again, it wasn’t me …
And finally, you make the conclusion that those people who have strong views are normally wrong, especially about investments. Again – give us some examples.
I could equally give you many examples of strong-minded individuals who have made fortunes for themselves and their investors, such as Jim Rogers, George Soros, Warren Buffett, Ray Dalio, Carl Ichan and others.
Research-based investment advice
Let me provide Moneyweb readers with some context about my recommendation for most South African investors to diversify their investments. I can assure you that it’s not based on some whim or some anti-SA feeling I have, as some people seem to think. It was based on what I would like to think is solid, research-based recommendations.
Until 1997, South African investors were not legally allowed to invest any of their money offshore. Over time that was a severe impediment to global wealth creation.
This situation was improved by the introduction of foreign investment allowances which started at R200 000 in 1997 and gradually increased over the years until the stage we have now where you can take R11 million offshore every year (R10 million investment allowance plus R1 million annual allowance). For all practical purposes, foreign exchange controls have been scrapped, except for the very rich.
South African investors were initially loathe to take some money offshore. First there was the 2000-2002 tech boom/bust which put investors off, which was followed by a golden period for local investments on the JSE, which started in 2001 and continued unabated until the Great Financial Crisis of 2008.
This boom was characterised by rising commodity prices, a strengthening of the rand and several upgrades to our international credit ratings.
It would have been foolish and downright reckless to recommend offshore investments when all the cards were falling in favour of commodity-producing emerging countries such as South Africa.
When the facts change
But when the facts change, you need to change your views and recommendations with them.
By 2010 it was clear to me that the macro-environment was changing for the worse, especially for SA. The one thing my university professors told me many years ago was to be particularly alert to the commodity cycle and, with it, the terms of trade.
By the end of 2010 it became clear to me that the commodity cycle was starting to look downright toppish and heading lower. In several company newsletters – for all to see on our website on www.bwm.co.za—- and on air (SAFM and RSG) – I started recommending offshore investments based on these facts.
As a result of the dramatic downturn in commodities, our terms of trade, and some fiscal own-goals by the ANC-government, we also saw the start of our international downgrades to the current junk status by two of the three large credit ratings agencies.
At the same time, the tech and biotech boom was starting in the US, an investment area we don’t have access to in SA.
I only started writing columns for Moneyweb in 2012, but in one of them I referred to the fact that I liquidated my local investment portfolio, plus my preservation fund, in October 2011 – at a rand exchange rate of R6,84/USD – and moved that offshore.
I felt strongly enough about my own analysis to move 100% of my liquid investment abroad, but would never recommend such a move to anyone else.
I doubt I would today be able to afford my apartment in Mauritius. In rand terms, the price has gone up by 150% over five years … ouch!
To disprove the contention that people who took their money out when the rand was at R17/USD lost a substantial amount of money, herewith a chart showing just three different investment options: the JSE, Orbis Global Equity and the Orbis Japan fund. East or west, you would still be ahead in the relative investment game as opposed to leaving your money in the SA equity market – and that was the worst possible time to buy US dollars.
The truth of the matter is that local investors don’t seem to realise just how poor the local equity market has done over the past three, and soon four, years. The results have been disastrous as local companies shunted billions of rands offshore over this period of time.
Investing offshore when the rand was at R17 to the USD
So any ‘analysis’ of my strong recommendations to invest a great deal of your portfolio offshore needs to take 2011 as the starting point, not the statistically convenient January 2016-April 2018 period. Do the same charts starting in December 2015 or February 2016, and you have a totally different picture, one that shows that your offshore investments have massively outperformed your local investments, particularly when you had included the S&P 500 and Japan, as indicated by the chart.
The outperformance has been massively in favour of offshore investments.
Japan not only now beats us on the rugby fields, its stock market returned more than double the returns earned on the JSE over seven years and more.
And finally Patrick, offshore investing is not always about being right or wrong (about the currency/markets/investment returns and so on). It is about diversification. Are you suggesting that local investors should not be diversifying at least a portion of their wealth into other markets?
I repeat, for the record: some investors should not have any money offshore – their risk profile does not allow for this. Others, again, should have 100% offshore if their long-term objective is to emigrate to another country or to retire there. It all depends.
But just to make sure you understand what I am trying to say: “It wasn’t me … ”
Magnus Heystek is investment strategist at Brenthurst Wealth.