JSE or offshore?

JSE or offshore?Where to invest in 2017 A major discussion point for 2017 is a focus on the 'risk-appropriate' side of the equation. An asset manager has two primary goals: protect client capital, and generate a return for clients by identifying risk-appropriate assets.

A major discussion point for us as we look forward into 2017 is a focus on the 'risk-appropriate' side of the equation. To illustrate this point, here is a statistic for consideration:

“If you invested in the JSE All Share Index from September 2014, your portfolio has returned just 4.7% including dividends”.

Put another way: if you are the average local investor, diligently trying to save through a retirement annuity, perhaps using an index-tracking product for the lowest possible cost, you have effectively gone backward after 16 months of contributions. Only dividends have dragged you over the line and into the black over the period.

Industry heavyweights such as Deutsche Bank are making some encouraging noises about South Africa once again, but this needs to be seen in the context of the Eurasia Group seeing us as one of the top ten political risks across the globe in the coming year.

For us, it makes little sense to encourage clients to keep pushing their capital into South African assets, when there is such a high degree of uncertainty. South Africa definitely has its place in your portfolio, but 2016 has illustrated the overhang of bad political decisions on our economy and your investment portfolio.

Ok, but what about the Trump factor? Without a doubt, we are entering a fascinating investment period. When the president-elect of the United States can knock millions of dollars off the market capitalisation of automotive and aerospace firms with a single tweet, then the word 'volatility' is redefined.

Let's again weigh up risk and reward. Recently a Donald Trump tweet knocked off 3% from Ford and nearly 2% off of General Motors in a single day. The major US indices however were down 0.21% (Dow Jones Industrial) and 0.08% in the case of the S&P.

What if the ratings agencies decide that the political and economic risk justifies downgrading South Africa to 'junk' status? This is a very real risk for 2017 and with Standard Bank (3.49% of the Top 40), FirstRand (3.17%), Barclays Africa (1.37%), Investec (1.1%) and Nedbank (0.97%), the whiff of a downgrade will immediately drag down the index. On top of this, the likes of Remgro and Old Mutual will also be punished with their bank exposure.

If we stick to our mantra of protecting client capital, then we feel investors would be better served by building a portfolio of offshore ETFs and equities. In this way we can reduce concentration and event-related risks for clients.

The global investment environment is highly fractured and is likely to stay this way for much of 2017. This implies that the overarching theme will be balancing risk and reward.

MONEYWEB