Liberty launches offshore products as low JSE returns frustrate investors
The global portfolio will give its investors exposure to companies in the US’s S&P 500 and European Euro Stoxx 50
As the JSE continues to decline and SA’s growth forecast get revised downward in every budget speech in recent times, investment companies are increasingly looking offshore to deliver returns to their customers. The JSE is down 14% so far in 2018.
On Tuesday, Liberty — after more than a decade of not offering any new offshore products — launched a global portfolio that will give its investors exposure to companies in the US’s S&P 500 and European Euro Stoxx 50. The insurer has a traditional global portfolio but it is the first time since before the global financial crisis that it is offering investors exposure to other asset classes.
“When it comes to products that gave our clients exposure to offshore markets, we tended to get in at a wrong time.… We are getting back into the space by taking alternative type investments,” said Liberty’s director for the investment propositions division, Vimal Chagan.
He said the single-digit returns delivered by the JSE in the past five years has increased investors’ appetite for something different.
“It’s been very difficult for investors to reach their financial goals … so what we can do in the investment space is do something a bit different,” he said.
Chagan said they looked at Europe and US in particular because the S&P 500 had gone up by 50% over the past five years and while the Euro Stoxx 50 was more volatile, it offered investors a chance to put their money in asset classes beyond the traditional mix of bonds, equities and cash. Liberty is guaranteeing investors’ capital if the market returns are negative and will offer a minimum return of 10% if returns are positive. But investors have to stick it out for five years to get these benefits.
Natalie Phillips, head of SA Institutional at Investec Asset Management said global markets offered South African investors more “investable” options as the MSCI equity alone has more than 2,500 liquid shares to invest in.
“In SA, your investable universe is about a hundred if you are lucky,” she said.
Investec already has offices in many developed markets including the US and UK and has started an investment office in China where it offers an all-china fund. Phillips said Investec has always held a view that diversifying through offshore assets was the way to go and with Regulation 28 now allowing South African investors to put up to 30% of their money in offshore markets outside Africa, offshore diversification is going to become mainstream.
“In 2000, R56bn was deployed offshore by South African investors and today it’s around R516bn. The trend is massive and it’s going to continue because you have the ability to participate in fantastic investment themes globally…You can invest in sectors and subsectors that are not prevalent in the South African market like fintech, artificial intelligence and other disruptors,” she said.
However, unlike Liberty, Investec has taken a cautious approach towards US and holds a cash position instead of investing heavily in US equity. Phillips said they were concerned that the multi-year bull run might not be sustained.
Xhanti Payi, an economist and founding director of Nascence Advisory and Research, said that while the markets were not too great offshore either, there were still more sweet spots for South African investors there given indicators such as low inflation, low unemployment and higher growth rates.
“That environment is a positive environment … clearly while we thought for a long time we need to look away from the West and more to the East, it wasn’t such a wise decision… For the time being I suspect it’s still going to be a good party. I think we can sit in the market.”