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Ciaran Ryan: 2023 was a disastrous year for the JSE, with annual growth for the All Shares Index and Top 40 Index of just 3%. Compare this to an astonishing 54% for the Nasdaq and 25% for the S&P 500.
The world's biggest tech stocks, including Apple and Amazon, accounted for most of the gains. When you see the difference between local and offshore returns, you may get caught up in fomo (fear of missing out) and rush to raise money offshore. But before you do that, get some advice from the experts.
Wendy Myers, head of securities at PSG Wealth, will also be joining us. Hello, Wendy. It was good to talk to you again. When we spoke last year, you said it was important to meet with your financial advisor to review your portfolio's performance and assess whether changes were needed to properly set it up for long-term and short-term success. I was there. He explains the returns for his SA investors in both local and offshore markets and helps you understand why we saw such a disparity between local and offshore returns last year.
Wendy Myers: Look, you're right that the JSE didn't perform last year. This is precisely due to the effect of high interest rates. We know that interest rates have an adverse effect on stock price performance, so that's something to be aware of. If you look at the performance of the JSE when compared to the offshore market, and some of the strong performance of the offshore market, you get some very sobering results. However, it is also important to note that it depends on where you invest offshore.
If you look at FTSE, for example, its yield was just 2.4%. That's because this index is quite a commodity-focused index, and the commodity sector has had a really tough year in 2023. It will be a tough year heading into 2024.
But obviously, if you focus on the US, the S&P has had great returns and the Nasdaq has really been driven by the Magnificent Seven. [Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla] what you talked about.
So, really, we just sit back and say investors need to have offshore exposure. And while that may seem daunting, it's important for investors to sit down with their financial advisors and discuss their portfolio and risk parameters, as I hope many investors will do at the end of 2023. I think it's important to consider what that is. I would like to warn you that it is not necessarily sustainable.
This is why PSG recommends keeping at least 60% of your invested assets in the local market. When considering stock returns, remember that you are taking a very long-term perspective. We don't just look at last year's achievements and assume that they will continue into the new year.
Ciaran Ryan: Many people will take the advice you gave, which is to keep 60% domestic, with a little bit of a grain of salt. Because they compare the revenue they get overseas with the revenue they get in the local market and say, “No, I don't.” I would like to move more money overseas. What do you say to those people?
Wendy Myers: Well, I think I can understand that “fomo” experience.I think there are various stocks and ETFs. [exchange-traded funds] World wide. I believe there are even more offshore ETFs than an actual single counter. So the variety and content of what's available is huge and can burn you.
Looking at some of the most popular coronavirus-related stocks, these stocks are still trading 75% below their highs, meaning investors could lose a lot of money.
And the important thing about Nasdaq returns is that these are the only seven stocks that actually delivered. The rest are still behind.
So I think investors need to be very cautious and they need to sit down and say to themselves: You need offshore exposure. What's the best way? Now you can invest directly in your own name. Do you know how investors can make R1 million a year offshore? [allowance] – This includes travel expenses that do not pass through the required SARS [South African Revenue Service] Approved. Alternatively, you can apply for a foreign investment allowance of up to R10 million per year. This requires approval from Sars.
Therefore, exchange controls have been relaxed to the extent that investors who wish to invest offshore have the ability to do so. Next, investors must consider and decide what structure to use. So once you've decided on a platform, you have to say, “Do I want to invest offshore in my name?”
Here you need to remember that there are certain tax risks, and this is one of them. Many advisors will listen to you and tell you that the best way to gain exposure is to look at endowments, which protect South African resident investors from these situational risks.
However, some investors, given my risk profile, would like to make an investment in addition to the fund, especially in their own name. I want to make sure that the platform, the structure that gives me that ability is completely offshore.Remember, Ciaran, there are a lot of dual-listed stocks. [that] You can gain exposure to overseas markets while shopping in South African markets.
However, the important thing that South African investors should be aware of is that [with] Many of the tech stocks that are part of the Magnificent Seven can only be invested in directly offshore.
Ciaran Ryan: Okay. This brings us back to the role of the financial advisor, which we talked about last year. Let's be clear: Financial advisors are not there to tell you where to invest or in what stocks. Let's revisit why a financial advisor should be involved in portfolio decisions.
Wendy Myers: I think it's important to remember that they are experienced and have a lot of research at their fingertips. A financial advisor will assess where you are in terms of your risk parameters, financial needs, and life stage, and use that information to guide you on the best path forward.
I've often said that financial advisors have their own financial advisors because they are very good at taking the emotion out of investing. I think this is an important point because it allows investors to take a disciplined path to investing. They don't kneel, so I think investor sentiment drives buys and sells, and the timing is usually bad.So [financial advisors guide you in] Stay the course. We also provide guidance to ensure you stay invested. It's not a one-time experience.
An advisor can look at your portfolio construction and say maybe you're investing too much in tech stocks because you have fomo and want to have exposure to all of the Magnificent Seven. However, when looking at the overall portfolio, there is too much focus on technology.
Therefore, they will actually make sure that your construction is suitable to weather short-term shocks and support you in achieving your ultimate long-term financial goals.
Ciaran Ryan: And finally, as we look ahead to 2024, we're reading a lot about the easing of the interest rate cycle and how that will impact bond and equity markets. What is your overall advice for people as we enter the new year?
Wendy Myers: Well, at this stage I think there is a strong view that we are nearing the end of the hiking cycle in South Africa. We do not expect rates to be lowered this year. It's a good time to enter the market as prices are falling. I think the consensus on offshore is certainly that it's a soft landing, especially in the US, and that we're nearing the end of the interest rate cycle. And I think they even expect the Fed to start considering lowering rates, but not aggressively. So I really think so. [for] Investors, in my opinion, take action now and talk to your financial advisor.
If you don't already have one, now is a great time to take a look at exchange-traded funds, which can provide diversification and set you on the path to investment success.
Ciaran Ryan: Again, the recommended split of the portfolio is 60% local, 40% offshore. Is that correct?
Wendy Myers: That's exactly right. Obviously, this is rough guidance and depends on where you are in your investment journey. You can decide how to customize it to suit your unique needs.
Ciaran Ryan: Do you foresee a better year ahead for the JSE?
Wendy Myers: I really hope so. I have to be honest. As investors in South Africa, I think we've been in a tough spot lately, so I'd love to have a crystal ball and say exactly where it's going to land.
But all I can say is that I think it's important that investors start paying attention to the JSE and what it can offer, start putting money aside into solid stocks with high dividends, and then start doing a little homework. Regarding offshore investments that suit your risk profile – because I truly believe that having exposure to equities will lead to long-term success in beating inflation. Because that's what's important to us.
And even if the JSE were to emerge from a fairly depleted base, I think it could certainly be an important tool in achieving financial goals.
Ciaran Ryan: surely. Leave it as is for a while. A special thank you to Wendy Myers, Head of Securities at PSG Wealth.
Brought to you by PSG Wealth.
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