Piet Viljoen’s South African bet paying off against Magnus Heystek – so far

With 16 months left in the competition, Piet Viljoen’s bet on undervalued South African equities through the Merchant West Value Fund is leading against Magnus Heystek’s offshore investments. 

Viljoen and Heystek were originally given R500,000 four years ago to invest according to their own core strategy by a subscriber to BizNews after years of debate on local versus offshore equities. 

Strong proponents on each side argued that their portfolio would outperform the other, and Viljoen and Heystek were in opposite camps.

Viljoen argued that local stocks offered better opportunities, while Heystek was convinced international stocks were the best option.

So far, it is Viljoen who is leading the way. Through the Merchant West Value Fund, his R500,000 allocation has grown to R627,942 – a 26% return. 

Heystek’s offshore portfolio suffered early setbacks as global equities sold off amid rising inflation and interest rates, shrinking his R500,000 to R350,000. 

However, more recently, international equities have bounced back, and Heystek has recovered all of his losses and then some. The original R500,000 allocation given to him has grown 19% to R595,872. 

As a result, with only 16 months left of the challenge, less than R30,000 separates the two portfolios. 

Viljoen said in a recent BizNews interview that he remains committed to his original investment thesis – South African assets are deeply discounted, pricing in corruption, dysfunction, and political instability. 

Thus, any modest improvement from good governance, strong commodity cycles, or a shift away from the US dollar offers significant upside. 

“If there’s a little bit of good news, you can make a lot of money. If nothing improves, you still earn strong dividends from solid businesses at low valuations. I like those odds,” Viljoen said. 

Viljoen admits that South Africa’s exchange is dominated by a handful of mega-cap stocks like Naspers, Prosus, and Richemonet. 

“The reality is that most of our top ten local equity funds all look the same. You’re just buying the index minus two per cent,” Heystek said. 

Viljoen’s fund, however, is invested into mid-cap stocks such as Sabvest, Argent, and Lewis. These companies are typically overlooked by larger fund managers.

On the other hand, Heystek remains committed to global equities, with his R500,000 invested across funds in Europe and the United States. 

Heystek said that his recent recovery is due to timely bets made by fund managers, such as Sean Peche at Ranmore, and Ninety One’s European equity portfolio, which is invested in defensive stocks in Germany. 

“I started off trying to do too much, too much trading, too many switches,” Heystek admitted. 

“Now I’m letting the fund managers run. I’ve got a strong offshore blend and I’ll make only small adjustments based on things like the dollar story.”

Both Heystek and Viljoen have been surprised at how well local equities have performed despite threats of expropriation of property, a failing logistics network, and political chaos. 

“The stock market isn’t the economy. It’s forward-looking and it’s already discounted most of the bad news,” Viljoen said.