If political uncertainty, power cuts and the economic slowdown is making you stay out of the market; think again. You can still make money out of South African equities when the going gets tough.
Last year, Investec launched RandHedge as part of its exchange-traded fund “Z-shares” range. This fund, which is listed on the JSE, performs well when the rand is weak. Since it launched on December 4, RandHedge has performed 11,48% compared with the Top 40, which is down 0,7%.
The portfolio construction is based on research Investec economist Brian Kantor has undertaken over the past five years. Apart from considering shares geared to rand weakness, the portfolio also considers the risk ratio of the fund-blending companies that provide diversification.
Currently the portfolio is made up of Anglo American, BHP, AngloPlatinum, ImpalaPlatinum, Sasol, Richemont and Liberty International. Five of them are geared to the commodity sector, so even if the rand stabilises at its current level there is still the upside if commodity prices continue to run.
It also offers an alternative to offshore investments if your only rationale for investing abroad is rand weakness. Offshore diversification has a place in any portfolio, but if you are only investing because of the rand, then where would you invest considering that globally stock markets have fallen?
According to Michael Keeves of Investec, the FTSE is down 3% for the year so far, so the 5% fall in the rand only just offsets those market losses.
At the time of launching its range, Investec also launched RandPlay. This is diametrically opposite to RandHedge and is geared towards the South African economy with financial and retail shares.
As a result, it has suffered since launch, underperforming the Top 40 as political and economic concerns have driven down share prices of companies geared to the local economy. But last week, when South Africa’s growth figures came in better than expected, RandPlay jumped 4% in one day.
So if you are feeling a bit more optimistic about South Africa Incorporated and that the rand weakness is overdone, then now may be the time to take a bet on the country.