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Investment advice from Mike Tyson

Market turmoil aside, nothing has changed Magnus Heystek’s investment portfolio.

Mike Tyson doesn’t often feature on financial pages or websites, unless it is in commentary on how he blew an incredible $300 million of career-earnings as a heavyweight boxer and is today bankrupt.

But the one thing he did reportedly say resonates with many investors, especially against the backdrop of events on world financial markets during the first two weeks of 2016.

“Everyone has a plan until they get smacked in the face,” he was quoted as saying. Tyson was referring to the brutal sport of professional boxing when, despite weeks and months of training and working out a strategy to demolish an opponent, the opponent, who also has a plan by the way, sneaks in a haymaker or uppercut you didn’t see and suddenly you are hanging on for dear life.

Such is the investment game at the moment. Over the past two weeks or so, millions of investors have been smacked quite hard, losing money hand over fist in commodities, oil, equities and even bonds.

The experience of SA-based investors was even worse, as the further collapse in the rand, from about R14.20 to the US dollar at the beginning of December last year to around R17 in mid-January, added to the extreme volatility. The best option during this time was plain old simple US dollars. But this is not going to last forever.

It also did not help the mood when the Royal Bank of Scotland (RBS) wrote an investment letter to its clients early this year advising them to “sell everything”, warning of an absolute calamitous year in financial markets as the deflationary bear takes hold of everything financial.

So there I was, gliding into the new year after a couple of wonderful weeks cycling and vacationing on the peaceful and crime-free island of Mauritius, thinking I still have the luxury as always of assessing 2016’s prospects and then to advise, to those who care, where I think the good fortunes lie ahead.

But that was not to be. Already on January 2 2016 investors experienced another sudden collapse of the Chinese stock market, with even the shock absorbers meant to prevent extreme gyrations not having much of an effect.

At the same time on the other side of the world, oil prices kept on falling in line with commodity prices and even my stand-out favourite asset class of the last five years, biotechnology, succumbed to a battering of brutal selling.

The first two weeks of the year, I read somewhere, was the worst start to financial markets ever on record. Talk about not seeing that haymaker!

Trap of timing the market 

So would these events have any impact on any recommendation I might have for the year ahead?

Absolutely not, for if they did I’d be falling into the trap of trying to time the market – proven time after time as the worst strategy that any investor can attempt.

The RBS pronouncement on markets reminds me of an Economist front-page article published around 1999 which boldly pronounced that the oil price, which at that time was trading at $10 a barrel, was heading for $5 a barrel. It gave reams of pages of facts, opinions and analyses as to why this was the only outcome for oil.

It was a great piece of investigative journalism, but the only problem was that it was almost the precise time when the oil price started rising and less than four years later was trading at above $100 a barrel.

So, big and bold predictions, like we’ve been seeing again over the past fortnight, are almost invariably wrong.

The second point to remember is that the flip-over of the calendar from one year to another has no bearing on the economic or financial fortunes of any asset classes. The media likes these forecasts, especially the alarming ones and we like reading them, but they have no real validity and should not alter your long-term investment strategy.

Changes to your investment strategy should be based on life-changing personal circumstances, such as losing a job, approaching retirement or getting divorced.

Any adjustment to your long-term strategy should also not be radical but gradually in line with your changing life-circumstances.

Battered and bruised but still my favourite 

My favourite asset classes and personal investment has been known to Moneyweb readers for many years. It’s matter of record in many previous articles that I have been negative on the rand for about five years and moved most of my personal investments offshore at the beginning of 2011 when the rand was trading at around R6.80 the US dollar, allocating a substantial portion into biotech funds, something we don’t have in SA and can only be obtained in the US.

Investment success is also determined by the investments that one did NOT make. In my case I have been avoiding  SA funds which tried to make a valuation-based argument for commodities and gold shares. These funds, which includes the RECM Equity-, Momentum Value-, Cadiz Equity Ladder and the Investec Value Fund, have been investment disasters over the past five years.

I was not persuaded by the arguments of these fund managers that their respective investment premises were correct, although John Biccard’s Investec Value has done very well over the past six months as a result of his large exposure to gold shares.

However, I still don’t see it as a long-term trend of outperformance.

So where is my own money?

As stated previously, it’s been offshore for five years now and it still retains a large exposure to the Franklin Biotech Fund. Even the sharp losses in recent weeks haven’t swayed me from changing my investment strategy. Have a look at the performance of my chosen funds versus the JSE All Share index.

Elle 2 Elle 1

The portfolio has been augmented with the Fidelity Select Health Care Portfolio Fund. I see healthcare as a global macro trend that could last for several decades as people in the western world live longer than ever before. They will also spend their vast wealth on living longer, looking better and trying to retain their youth for as long as they can. Wouldn’t you if you had the money?

Aligned to that I have also put some money into the Fidelity Global Demographic Fund which invests in companies servicing the rising number of older people. This is another investment theme that resonates with me.

The fourth fund currently is the Investec Global Franchise Fund, run by the brilliant Clyde Rossouw. When you speak to Rossouw you can almost hear the intelligence whirring around in his redoubtable brain. He is rated even amongst his competitors as one of the sharpest brains in the investment world.

This has been one of the best performing global equity funds and the investment theme is one of investing in a portfolio of  global companies that dominate their area of business.

My smallish exposure to China by means of the [Franklin] Templeton China Fund has thus far not been a great one, but again, this is  a long-term portfolio and I am prepared to ride it out. I would probably only need some money in ten years from now or so.

Local funds

What about the local funds, especially for investments in preservation funds, retirement annuities (RA) and living annuities?

There I have a smallish RA, consolidated from my poorly performing old-style Sanlam and Old Mutual older generation RAs, which is currently invested in the Counterpoint MET Balanced Plus Fund, a fund managed by the very experienced Steve Mills together with Dr Alex Pestana. I intend switching this into a living annuity soon to get around the restrictions of Regulation 28. It would probably be going into the Counterpoint Global Equity Fund, a brand new fund and therefore small and nimble.

And then for my children and grandchildren all their Christmas and birthday gifts have been going into the MI-Plan Global IP Opportunity fund, which last year gave a return of 34%. This fund too is managed by one of the grizzlies of the investment world, Tony Bell , who years ago was a Raging Bull-winner many times over under the Syfrets banner.

There you have it. My advice to investors remains the same: live (and pay your taxes) locally and invest globally.

*Magnus Heystek is the investment strategist for Brenthurst Wealth. He can be reached at magnus@heystek.co.za for ideas and suggestions.

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Renee Eagar

Renee Eagar

Brenthurst Wealth
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Magnus (or any others), two questions:
1. what would your offshore exposure % be for an SA (or anyone living in an emerging market) investor, 100% over the long term or less?
2. your funds are all active, but hypothetically if you were to recommend a passive route, would something simple like the dbx trackers at 0.68% p/a fee work, or rather go via an offshore platform like Standard Bank Webtrader, convert to USD and purchase Vanguard (0.20% for Webtrader plus 0.08% for Vanguard) with the difficulties that comes with having your funds out of SA in USD in terms of tax treatment and repatriating when required.
Any thoughts welcome…

Good Q jblack! Magnus, lets hope u will give us some free advice…please!
Simon Brown likse DBX World – easy to admin. I also like! Getting info for tax purposes from offshore investments can be such a hassle!! I do DBX via Easy Equities.
Just a thought – for every share sold, there must be a buyer! Supply and demand!
So, while share prices are falling, somebody is buying!

What happened to all those analysts who told us in June 2014 when the oil price was USD120 per barrel that the world’s oil supplies would only last another 50 years and that we’d never see USD120 again! Now they’re most surprised at the USD30 price.Anybody who doesn’t believe that world financial markets are rigged big time needs to have his head examined!

Which investment platforms are the best ones to use for setting up such investments? For one who is already resident offshore?

There a few platforms to choose from, but notably amongst them are:

Investec, Allan Gray, and Momentum Wealth International. Different platforms have different service offerings, but Momentum Wealth International offers the widest range of offshore funds (1,000+)

Thanks, most helpful.

Hi, Magnus

Thanks for your insights. I am trying to maximize my provident fund tax benefits by investing as much as possible in this fund (passive funds only). But, as you know, the global exposure is limited by law and I feel like I’m barking up the wrong tree! What does one do…maximize tax-benefits or decrease pension fund contributions and simply invest the difference in global ETFs in a TFSA?

Great read Mr Heystek, I love it when you talk foreign with me.

What goes down will come up. Be ready to buy bargains.
I am worried about sending off shore at the moment, remember was it 2000 or 2001 when the rand went to R13/$ and then in 6 months back to R6.00
My offshore has only grown as a result of the rand weakness, the share appreciation is abysmal and the charges are twice the dividends. In the perfect world what would happen if Cyril was elected president and surrounded himself with proven captains of industry to run SA Inc???

2000 – 2001 we did not have Jacob Zuma and the level of chaos we have today!

My take on this: Allocate 60% of your offshore exposure to ETFs and 40% to actively managed funds. I think Standard Bank Webtrader is the most cost effective platform we have in SA at the moment. Split between local and offshore: 40% local and 60% offshore (this is for long term investors – Even if the rand pulls back against dollar, in the long run it will always be weak).

Along with the Franklin Biotech Fund, BB Biotech AG is a very good choice in my opinion. It acts as a Fund but isn’t. Therefore no 5.25% subscription fee as with Franklin. The last time I checked they were trading at quite a discount. They also have one hell of a management team and an impressive dividend yield!

The 5.25% fee (most funds call this a sales charge, but it is an upfront fee) only applies for direct investments. Investing via most platforms allow for that fee to be waived, as well as their sales charge.

Magnus, Welcome home. Driving in Mauritius can be hairy, heaven knows what cycling must be like !

A word about falling markets, or even those that drift sideways like the Australian All Ordinaries, for three years. As you so rightly tell us, never try to “time” the market. Buy a good company (remember you are a part owner) when prices fall then HOLD.

I have been invested in Australia for over 20 years, the market drifts sideways but the dividends keep climbing (in AUD terms) Why ? I invested in well-run companies. For sure, they will face tougher trading at times, but don’t jump ship. It’s not rocket science, just common sense.

Excellent financial advice from an advisor…which is to listen to an amateur. 1.Can never understand why advisors advise not to time the market. I mean doesn’t the cio of a”fund” or ceo of BHP, even Warren Buffet not time the market?…so by default as an investor i am also timing the market? So why should i not exit a bear market?…or enter a bull market when the time is right.
The only way to beat the market…is to time the market.
2. The issue today is a surging greenback, my 5yr investment in 1000 1/24 scale models priced in $ and saleable on global ebay has been a better investment than bio tech stocks.

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