On June 11 2020, almost five years ago, the Financial Mail published an article focusing on me and my views on choosing between offshore and onshore equity markets for personal investments.
The headline on a balanced article “How Magnus Heystek became SA’s Dr Doom” was more alarmist, earning me a moniker that to this day hasn’t been completely erased and raising chuckles whenever and wherever it is used.
My immediate reaction was to furiously pen a reply, thundering away at all the reasons why I was right and everyone else was wrong, but then I stopped, reminding myself of the old Arabian saying: “Revenge is a dish best served cold.”
Over the recent Christmas break this article popped into my blissful holiday existence again while chatting on the beach with a fellow South African, who two days later called to say: “Ah, I’ve googled you and you are called Dr Doom by Business Day”.
So, perhaps it is now time to write my rebuttal and put some undisputed facts on the table. But first some background. I don’t work for a bank, assurance company or any of the many SA asset management companies. I work for fee-paying clients who demand an honest and objective assessment of the financial situation (in SA and elsewhere in the world) and I earn a fee based on the performance of the portfolio. As do all 23 of our advisers in nine offices countrywide. There is no hard-selling or commission-driven targets, which tends to be the norm in many parts of the greater financial services industry.
In 2013, I returned from an investment tour of the US during which our group visited companies including Facebook, Amazon, Google, Tesla, Boeing and Starbucks. My main impression gained from this exposure to some of the world’s most innovative companies — the potential of which I totally underestimated — was that South Africans need to have an exposure to these and other companies, which were changing the world.
I also attended an investment seminar where I was exposed to John Maulden and his strong views on technology and biotechnology shares. His parting words to me when we spoke afterwards were: “technology, technology and more technology...”
On my return to SA, feeling much like Jim Rogers, author of The Investment Biker, I found few ways to participate in this nascent boom in technology companies on the local scene. I concluded that the only way to do so was to take some money offshore.
This recommendation hasn’t changed, and has made the early adopters of this investment strategy very wealthy indeed, with compound annual growth rates in excess of 25% over 10 years! The time to get into those Magnificent Seven shares was 10 years ago; they have only now hit their stride.
Huge profits
I witnessed one or two clients who now have more than R100m from a starting capital of R10m — life-changing indeed. At the same time, the JSE started showing signs of the damage inflicted on business conditions by the Zuma years in general, which led to several downgrades by the ratings agencies as well as an enormous outflow of capital from exchange’s capital and equity markets.
Over the past five years this combined outflow now exceeds R1.7-trillion, according to data compiled by Bloomberg, and shows no signs of abating despite the short-lived upturn in the performance of the JSE after the formation of the government of national unity (GNU).
Naturally, my advice didn’t sit well with the large asset managers, who tried hard to stem the outflow of capital with their “local is lekker” war cry every now and then. This was particularly prevalent at the start of the “Ramaphoria” phase, which also disintegrated.
There was one large asset manager at the time — 2018 — who confidently forecast that the “JSE would be the best global equity market over the following five years”, as reported by Business Day. We now know this forecast had no basis; in fact, it was just wishful thinking.
But as time marched on so the difference in returns between local and offshore funds got bigger and bigger — in favour of offshore — to such an extent and for such a long period that there was absolutely no reason for advising clients to stick to the JSE for their equity investments.
And I said so on many platforms — in print, on radio and on various websites, which still publish my articles. Needless to say, the invitations to hearty asset manager lunches and golf days dried up, as it was known that, to quote the late UK Prime Minister Margaret Thatcher, “this lady’s not for turning”.
And here we are, 10 years or more after I started avoiding the JSE as a place for equity investments, and the results are in. This advice escalated especially after 2015, when the Treasury increased the single discretionary allowance to R1m, and R10m per person as far as the investment allowance was concerned. That essentially meant individual investors could freely remit their money offshore and invest anywhere in the world.
Indisputable facts
When the returns of the JSE are compared to the three major indices I consider to be important — the MSCI World Index, the S&P 500, and Nasdaq, you find the following results: in not one of the periods, ranging down from 10 years to seven years, five years, three years and one year (or even six months) could the JSE All Share Index match or outperform any of those three indices. Moreover, the outperformance of the S&P 500 and Nasdaq over the JSE was huge, in some cases returning twice or three times the returns of the JSE.
What was I supposed to do? Hard sell an underperforming asset for some additional fees or hidden commissions, only to see the financial outcomes of capital invested locally fall short of the rands and cents numbers earned by being invested offshore in better returning markets?
I don’t think local investors are aware just much this difference in rands and cents is today. R1m invested in the JSE All Share, MSCI World Index, S&P 500 and Nasdaq indices 10 years ago would currently be worth R2.163m, R4.444m, R5.614m and R9.029m, respectively. Even a 50:50 split between the MSCI World Index and S&P 500 would have been more than double the return of the JSE today.
Can this change? One must never use that word never in the investment world, and stranger things have happened, but as far as I can see there is very little on the economic and political horizon that will change the current situation. So, for the time being it remains offshore for equities and local for bond investments for local clients.
• Heystek, a former winner of Krutham (formerly Intellidex) awards as Top Boutique Wealth Manager, is an investment strategist at Brenthurst Wealth.
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