It’s that time of the year again where we wipe our foreheads and thank our stars the previous year is over because 2022 was tough. It was a tough year in many respects since the lead up to 2022 was challenging with Covid and continuous load shedding.
Investors were also panic-driven last year given the weak performance of stock markets all over the world. This was due to high inflation and high interest rates, war in Ukraine, energy crisis in Europe, but to name a few.
I believe 2023 will boast her own challenges, but just maybe there will be a silver lining to markets as we have seen at the start of the year.
Moving from 2022 to 2023 as an investor
No doubt most investors had a difficult time scrutinising their investment statements to realise their investment value dropping from quarter to quarter. Especially from the beginning of 2022, up until the third quarter. Suddenly everyone wants to change strategy and the words “stick to the strategy” from advisors land on deaf ears. Not to blame investors, they want to see returns and they don’t want to experience the feeling of panic and uncertainty. The fact of the matter is if you got out of the market last year when your investments were at their lowest you would probably be worse of had you stayed invested.
Since the market’s low point towards the end of Sept 2022 at around 63,400 points, it has recovered towards 78,800 points early in Jan 2023. That is a recovery of almost 25%. This does not necessarily correlate with a balanced SA portfolio, but it should equate to anything between 14%-17% recovery in such a portfolio. Lesson: Do not panic over the short term if you are invested in a quality strategy that’s been proven over time.
The more controversial part
We need to constantly adapt our strategies over different periods to adjust for changing times.
Not more than eight- to ten years ago no one really thought of the effect technology would have on our lives. Covid just amplified this and made us realise what a role it played. If you had invested in technology funds from early on you would have made your returns up until now irrespective of the fact that they have taken a beating the last 12 months or so. When looking over a time span of seven years plus, technology will still be playing a huge role in our lives and therefore I believe investors should have a degree of exposure towards these funds.
Hedge funds
I name this as controversial because most advisors and investors still do not realise the value these funds can and have added in client’s portfolios. It is true that these funds usually underperform when there is strong bull markets but will still give you a positive return. When looking at hedge funds and the value they have added to portfolios in sideways and bear markets or when there are a lot of uncertainty it shows what advantage they give in a portfolio. Be sure to take note of these strategies. Not to say all hedge funds are equal, but there are with a proven track record over time.
Looking at one specific hedge fund that we like to use in portfolios, it shows that they have outperformed the market 80% of the time over a 22-year period. Hedge funds are not the alpha and omega for a client but requires serious consideration to diversify a client’s portfolio and thereby reducing risk and giving a higher weighted return.
When should I move my money offshore?
On one thing we can agree, SA has a lot of challenges. Load shedding is a problem, the governing party is not moving fast enough, SOEs are basically bankrupt. I read a comment not too long ago that reads: “SA is never as good as we can be, but we are never as bad as we should be.” We always find a way to get through the difficult times, but we must not turn a blind eye for certain obvious risks that we face.
Everyone wants to take out money when the rand falls to R19 vs the dollar. This is not the optimal strategy, and you should not take out capital if the only reason is because of panic. Get the right type of strategy in place to convert to hard currency. Yes, it makes sense to diversify offshore, especially if you already have a lot of asset exposure in SA itself.
Remember the rand is one of the most traded, if not the most traded emerging market currency in the world and therefore is very volatile.
That’s why we can see a recovery from R19 towards R17 vs the US dollar in a short space of time.
I would recommend getting your affairs in order to convert rands if needed and have a strategy in place to convert at appropriate levels. If it’s not that urgent, I would probably wait for R16.50 to R16.70 versus the dollar to start taking out money. If it is a more urgent matter, I would start converting 25% to 30% of capital at current levels into dollars and take the rest out in tiers at a stronger rand.
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