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What a ‘lost decade’ looks like

By Magnus Heystek

South Africa’s largest asset managers have finally admitted what many observers have been saying for a long time: the JSE has been one of the worst investment markets over the past 15 years.

First, it was Coronation that raised this issue at its AGM in Cape Town recently, stating that returns of the JSE over 10 years – when expressed in USD terms – were almost zero.

The same week, Allan Gray’s CEO Duncan Artus said something similar; the JSE has returned zero percent in USD terms over 15 years.

This fact has been known and spelt out in certain circles–including myself–for many years, for which our only reward has been condemnation, personal attacks, and even a media blackout by some.

As most readers know, I have been recommending offshore investments for more than a decade, even setting two global funds – the Brenthurst Global Balanced and Brenthurst Global Equity fund – on the Momentum Wealth platform to provide clients a way to invest in USD rather than in rands.

But my recommendations – which have been expressed via many platforms including radio, print, and internet, didn’t endear me with the local asset managers, who saw this – rightly so – as a threat to their businesses and annual bonuses. 

Even fellow advisors often – and still do – have had a personal go at me for suggesting that SA investors globalise their assets.

I have been called a “financial pornographer” and more recently a “parasite” by Rapport columnist Nico van Gijsen, who still is a staunch supporter of local investments.

The mainstream media too, has played its part in this pretence that all is well with our investment markets.

You will hardly ever find a comparative analysis of local versus offshore in most major media outlets.

Trust me, I’ve tried, and I’ve received more rejection slips from editors than an aspiring actor in Hollywood.

Even expressed in rand terms, returns on retail funds in SA battled to beat the local inflation rate of around 6% over this time.

It’s quite common to find massive brand name funds, such as the Old Mutual Investors or the Nedgroup Rainmakers fund, showing returns lower than the inflation rate over 10 years.

I often wonder if investors know this, or how this is presented to them by their advisors or fund managers.

The above chart clearly shows the underperformance over the last 10 years when compared over periods ranging from 1 to 10 years.

The returns on popular offshore funds (all available in SA as feeder funds or via offshore platforms) have been consistently more than double that of the JSE ALSI index.

It’s alarming enough that the JSE ALSI, after costs and fees, hardly kept pace with local inflation.

More concerning is that once these returns are present in USD terms, it shows just how poorly the JSE – and all local investments have done.

The JSE ALSI has delivered 2.3% per annum in USD over 10 years, while it has lost money over five, three and one years.

Imagine saving 10 years for an overseas holiday or a new computer – both priced in USD terms – just to find your investment strategy didn’t work out as planned.

The average purchasing power of the average SA investor – when priced in USD terms – has plunged over the past 10-15 years, as Allan Gray and Coronation now belatedly point out.

But there is another dimension to this loss in purchasing power – it ignores the impact of US inflation over the same period, which has just been over 30%.

This makes the situation even worse: your rands, converted to USD 10 years later, now buy 30% less than it did a decade ago.

This is why emigration to hard-currency countries has dropped substantially.

The truth is that your SA assets, when converted into pounds, dollars or euros, simply buy you substantially less than expected.

Local residential property prices have declined by between 20-50% in USD terms according to my calculation, while your local assets at best have shown no growth.

What is often overlooked in this equation is offshore inflation which has further reduced the global purchasing power of money earned and saved in rands.

Even a favourite emigration destination such as Mauritius has become very expensive for South Africans considering a move to the island.

Ten years ago, it cost R4m or thereabouts to purchase an upmarket apartment in one of the designated estates on the island that provides for residency.

Today the same apartment costs about R20m due to the decline in the SA currency and the modest dollar growth on the property.

The effect is that more and more South Africans are renting on the island, rather than buying their homes.

They simply cannot afford to buy a property and have enough capital to live on.

Strangely enough, this has boosted the property market in the Western Cape as large numbers of upcountry people have simply discarded the idea of emigration and looked at the second-best option.

I have just spent two weeks in the WC, including Cape Town, Paarl/Franschhoek and Hermanus, and it’s been like visiting another country.

The roads (well maintained and without potholes) are jam-packed with traffic, restaurants are full (and pricey) and foreign tourists are all over.

I think this trend will continue for a long time as I don’t see (a) the currency improving and/or (b) returns on the JSE improving any time soon.

I agree with the views of Karl Leinberger, CEO of Coronation, that the JSE is facing another lost decade in the face of the destructive policies followed by the ruling ANC.

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My advice remains: buy property in the Western Cape but get your discretionary money offshore soonest. Live in a warm climate but get your money in a cold climate!

Magnus Heystek is a director and investment strategist at Brenthurst Wealth, one of SA’s top wealth managers.

Contact [email protected] or [email protected]


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