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Protect your portfolio: Invest overseas now!

If any currency or country enters a bear market you will, by adding an off-shore equity or currency component to your portfolio, be protected by a diversified portfolio.
By William Meyer

The importance of a global equity and currency strategy for South African Investors
Extraordinary profits from ordinary shares
Winning stock market strategies

Managing an investment portfolio is a complex exercise, made more so when adding an international component. The rapid integration of global financial markets, together with the growth in importance of emerging markets, has changed the structure of the investment management industry.

With all the changes and disruptions, however, many opportunities await the educated investor. It does involve a lot of hard work! You need to have a great insight into each country, their tax regimes for companies and individuals, the accounting rules and restrictions or incentives for foreign investors and an understanding of their foreign exchange controls and how these may change
in the future. These are just a few of the myriad factors that are welded into modern portfolio management and practice.

The fantastic growth of online travel providers

To begin your analysis you will need sources of financial information, trade journals, brokers reports, investment journals and visits to companies and their management teams.

It is a bit tricky to do this as a hobby – as the saying goes, perhaps you shouldn’t try this at home. But the difficulties and overwhelming choice should not dissuade you.

The hotel industry is also a fertile area of investment to consider.

Adding an off-shore equity/currency component to a South African portfolio is the most worthwhile and valuable change you can make.

Firstly, you immediately reduce the risk and volatility of the overall portfolio. If any one currency or country enters a bear market you will be protected by a diversified portfolio. Also, studying other countries helps you understand your own and this in itself helps you make better investment decisions.

Exciting prospects

The best countries to invest in have less government regulations, interference and ownership, fewer trade unions, lower taxes and no foreign exchange control. They also have hardworking, educated people who are honest and reliable, and who have a high propensity to save. These countries also spend large amounts on research and development.

Among the most exciting prospects are investments in fledging stock markets in rapidly growing emerging countries. This asset class has the highest forecast return of all assset classes.

Generally speaking, elephants don’t gallop. Mature economies and large corporations are just that – mature and slow. On top of this, the mature economies like Europe and the US are suffering a deflationary spiral. The hunt for growth is on.

A checklist for investors

Emerging markets are so much more attractive. These fast – growth markets have rapidly growing populations that new companies can exploit. Thankfully, many emerging market companies have listed securities on the NYSE, so this is a very easy route for out-performance.

The higher GNP growth, growth in international trade, privatisation, the embrace of capitalising and increasing acceptance as an asset class are other positive factors for emerging markets.
The addition of other currencies to your portfolio is also most important.

Sustainable energy

For example, the performance of the New Zealand dollar and the Swiss franc against the South African rand over the past few years has been nothing less than staggering. If you then pick choice companies on the New Zealand and Swiss exchanges, you add a whole new dimension to your portfolio.

In New Zealand, agriculture and sustainable energy accounts for 70% of that country’s economy. So for every New Zealand dollar you buy, seventy cents is invested in these sectors – sectors with great growth potential.

If you are not happy with your portfolio performance or would like a second opinion, please do not hesitate to contact Fenestra for a free review of your portfolio.

William Meyer is a qualified chartered accountant (SA) and chartered financial analyst (USA). He has been CEO of Fenestra Asset Management since 1990. He lives in Mooi River with his wife, Claire, and their four children, commuting to his head office in Cape Town. His company has outstripped the All Share Index with a compound growth rate of 18.87% per year since 2004.

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