JSE versus S&P 500 – Returns over 5 years, 10 years, and 20 years

There have been heated debates on local versus offshore investments, with strong proponents on both sides.

The debate has been raging for years and has even resulted in a Biznews challenge between two of South Africa’s best-known investors.

Brenthurst founder Magnus Heystek is one of the biggest international investing advocates and took on Counterpoint director Piet Viljoen in a five-year challenge to see who performs the best.

They were given R500,000 each, which Heystek invested offshore and Viljoen put in his South Africa-focused Value Fund.

In the first six months, Viljoen, whose money grew to R600,000, comfortably outperformed Heystek, who was down to around R350,000.

However, Heystek warned that it was early days. He added that international markets were hit by higher interest rates and mega-cap tech stocks plummeting.

This experiment will take years to conclude, but historical data provides valuable insight into the matter.

Sasfin Securities deputy chairman said he constantly debates the merits of having invested clients’ money offshore.

He highlighted that over ten years, $100 invested in the S&P 500 is now worth $305. $100 invested in the JSE All Share over the same period is only worth $101.

Over five years, Shapiro said, $100 invested in the S&P 500 is worth $174 while investing it in the JSE would only have returned $106.

Shapiro said despite the poor performance of the JSE over the last decade, he never discounts local opportunities.

“There are superb local businesses here, but liquidity can play a big part,” he said. “One must approach the local market like a private equity investor. Locally I would prefer to run a fund rather than bespoke portfolios.”

He said instead of thinking in terms of local versus international, he looks for great companies wherever they are based.

Local versus offshore investments

There are various reasons why South Africans choose to invest offshore, including:

• Converting their funds into foreign currency and investing in international companies to hedge themselves against the weakening rand.

• Over the past 10 years, the JSE has experienced many delistings, decreasing the South African investment universe. The international investment universe is much broader, with more opportunities and greater diversification options.

• Offshore markets have performed a lot better than The South African market. Many Investors cite the performance of the S&P 500 against the JSE All Share Index over 10 years to prove how an offshore passive investment strategy would have yielded much higher returns.

Over the last 10 years, R100 invested in the S&P 500 would have grown to R365.34 – a 13.8% annualised return.

The same investment in the JSE All Share index would only have grown to R199 – a 7.11% annualised return.

The past five years have had a similar result, with the S&P 500 growing to R188.29 with a 13.5% annualised return and the JSE All Share Index growing to R127.52 with a 5% annualised return.

For most investors, this is enough proof to put all their offshore, especially considering the currency effect.

However, when the investment horizon was extended to 20 years, the JSE outperformed the S&P 500.

The charts below show the return on investment on the JSE All Share Index and the S&P 500 over a 5-year, 10-year, and 20-year investment period.