If you are concerned about the effect the upcoming elections may have on the rand and the local economy, you may be considering investing offshore or increasing your offshore exposure. Even without the drama that May 29 threatens to bring to our lives, financial advisers will tell you that diversifying offshore is a good idea.
A word of caution: the volatility of the rand against a foreign currency such as the dollar must always be taken into account when investing offshore, because it can turn an already volatile investment such as a share (equity) portfolio into a hyper-volatile one.
South Africans have benefited hugely from offshore equity investments over the past year or so, on the back of both a falling rand and the stellar performance of the US tech giants, among others. A second word of caution: the “outperformance” of global equity portfolios cannot be expected to continue indefinitely.
There are many ways to invest offshore, but perhaps the simplest, cheapest and most accessible is an exchange traded fund (ETF) that tracks a global equity index. Note that in this type of product your investment is in rands. You are not transferring money outside the country.
I have done a survey of global equity ETFs available on EasyEquities, Shyft, etfSA and the online share platforms of Standard Bank, FNB, Absa and Nedbank, among others. They are not confined to certain geographies, although US companies dominate because of their high market capitalisations and global reach. I have also included an index that represents well-established, quality companies that pay good dividends.
The ETFs are grouped according to the index they track. Performance figures for the indices are in US dollars, while ETF performance figures are in rands – all to the end of March 2024 unless otherwise specified. Return figures are annualised, giving the average annual return, in most cases over five years. Volatility is measured as deviation from the mean – the higher the figure, the more volatile the index, and this does not take rand-dollar volatility into account. Total-return (TR) performance is where dividends have been reinvested. All information is from the fact sheets of the funds and indices.
MSCI World Index
This is the most popular index for investors in global equities. It represents large and mid-cap shares across 23 developed-market countries, with 1 465 constituents.
• Annualised TR performance over five years (USD): 12.6%
• Annualised volatility over five years (USD): 18.1%
• Top three countries: US 70.9%, Japan 6.1%, UK 3.8%.
• Top three holdings: Microsoft 4.6%, Apple 3.9%, Nvidia 3.4%
• Top three sectors: Information technology 23.7%, financials 15.4%, health care 12.0%
• Local ETFs: 1nvest MSCI World Index Feeder ETF (annualised 18.3% in rands over five years), Satrix MSCI World Feeder ETF (18.3%), Sygnia Itrix MSCI World Index ETF (17.8%). Investment costs range from 0.48% to 0.72% per year. The fees of the Sygnia Itrix fund depend on the platform used and amount invested.
S&P Global 1200 Index
This index represents the world’s largest investable companies. It captures about 70% of global market capitalisation, with 1 222 constituents in 30 countries.
• Annualised TR performance over five years (USD): 10.8%
• Annualised volatility over five years (USD): 17.8%
• Top three countries: US 62.1%, Japan 6.3%, UK 3.6%
• Top three holdings: Microsoft, Apple, Nvidia (percentages not specified)
• Top three sectors: Information technology 24.0%, financials 15.5%, Health care 11.6%
• Local ETF: FNB Global 1200 Equity Fund of Funds ETF. This fund holds a basket of offshore ETFs to simulate the composition of the S&P Global 1200. It has returned an annualised 17.5% in rands over five years. Investment cost is 0.41% per year.
MSCI All Country World Index
Combining the MSCI World Index and the MSCI Emerging Markets Index, this index represents 2 841 large- and mid-cap companies across 23 developed and 24 emerging-market countries. It represents about 85% of the investable equity universe.
• Annualised TR performance over five years (USD): 11.5%
• Volatility over five years (USD): 17.7%
• Top three countries: US 63.8%, Japan 5.5%, United Kingdom 3.4%
• Top three holdings: Microsoft 4.1%, Apple 3.5%, Nvidia 3.1%
• Top three sectors: Information technology 23.68%, financials 16.1%, health care 11.1%
• Local ETF: Satrix MSCI ACWI Feeder ETF, launched in February this year. No performance figures are yet available. Investment cost is targeted at 0.35% per year.
FTSE Global All Cap Index
This index is diversified across large-, mid-, and small-cap companies: 71% large caps, 20% mid-caps and 9% small caps. It comprises 10 126 stocks across 49 countries, including China but excluding Russia, and represents 98% of the global investable equity universe.
• Annualised TR performance over five years (USD): 11.1%
• Annualised volatility over five years (USD): 18.1%
• Top three countries: US 62.1%, Japan 6.3%, UK 3.6%
• Top three holdings: Microsoft 3.87%. Apple 3.09%, Nvidia 2.65%
• Top three sectors: Technology 25.0%, financials 14.3%, industrials 14.1%
• Local ETF: 10X Total World Stock Feeder ETF, launched May 2021. Annualised return in rands, from inception to the end of March was 16.58%. Investment cost is 0.28% per year.
S&P Global Dividend Aristocrats Index
This index represents the highest dividend yielding companies in the S&P Global Broad Market Index that have followed a policy of increasing or stable dividends for at least 10 consecutive years. The 97 constituents are weighted according to dividend yield, not market capitalisation, and weightings are capped at 3%, with the number of stocks from each country capped at 20.
• Annualised TR performance over five years (USD): 3.8%
• Volatility over five years (USD): 19.0%
• Top three countries: US 24.1%, Canada 20.2%, Japan 13.5%
• Top three holdings: Altria Group, Highwoods Properties, Solvay (percentages not specified)
• Top three sectors: Financials 26.2%, Utilities 16.7%, real estate 11.3%
• Local ETF: 10X S&P Global Dividend Aristocrats ETF, which tracks a customised version, the S&P Global Dividend Aristocrats Blend Index. Annualised return in rands over five years was 12.9%. Investment cost is 0.52% per year.
Next week I’ll look at global equity indices focused on socially and environmentally responsible companies.
* Hesse is the former Personal Finance editor.
PERSONAL FINANCE