Adriaan asks: I am living in the United States and plan on retiring to Namibia. I am in the process of selling a property in South Africa and I am not sure where to invest the proceeds.
Given the dismal performance of the US stock market between the period 1999 to the middle of 2010, the potentially drawn-out process of getting SA Reserve Bank approval for taking capital out of South Africa and the exchange rate risks over the long term (were one to invest in South Africa), would it make sense to invest a part of such proceeds in South Africa?
To complicate matters, the US stock market (and I suppose the South African market as well) improved significantly during the past year to the point where it may be considered overbought.
My experience with the US investment community has been one of, “Hand me your money. I need the commission right away,” which inevitably leads to individual investors buying stocks high and selling them low.
Mutual funds who manage our savings are not in the business of buying stocks and holding them for 10 or 20 years. They more often than not will dispose of 80% of their portfolio in the 24-month period following the start of a recession. I recall an adviser buying Sun Microsystems at $100 in 1999 and selling the stock at $4 within a year!
Do you have any suggestions? My offshore assets make up 70% of my total assets.
Maya replies: It is interesting that you raise the issue of the valuation of the US markets. South African fund managers are actually advising people to invest offshore at the moment as the relative valuation of the US and other developed markets is low compared with South Africa and other emerging markets.
Tony Gibson of Coronation Asset Management made the point that you can buy US companies on fairly low valuations that receive half of their earnings from growing emerging markets. While the US market may be recovering, there are still large US corporations with undemanding prices.
Perhaps you need to look at a mutual fund that focuses on value investing rather than investing with a growth bias. The value investors would hold their shares for far longer. Warren Buffet’s investment company, Berkshire Hathaway, is a case in point.
Retirement
You make the point about exchange controls and there is also the fact that you plan on retiring to Namibia, and its exchange rate is linked to the rand. Given that you already have 70% of your funds offshore, it would not be imprudent to have some local investments. Even if the rand does de-value from these levels, it would be in line with the Namibian dollar.
Passive investing
It sounds like you are frustrated with fund managers. If you want a pure equity no-fuss investment that is not actively managed you could consider a tracker fund like Satrix RAFI or Old Mutual RAFI.
Depending on how much you have to invest will determine the best platform to invest through. For large lump sums it is usually cheaper to invest through a stock broker into Satrix and you could negotiate your fee with Old Mutual.
Active funds
That said, given the fact that many fund managers feel the local market has run hard, you may want to look at an actively managed fund that aims to protect capital and deliver growth.
Managers like Allan Gray, Foord, Prudential and Piet Viljoen, who manages the Nedbank Rainmaker Fund, have a value bias and focus on capital preservation.
Also consider two of Investec’s funds: Investec Opportunity Fund and Investec Value Fund.
A final option is to invest through www.Investonline.co.za. This is a low-cost platform that assesses your risk profile and recommends a portfolio of unit trust funds. Your investment is spread across a range of fund managers who are experts in their various fields.
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