Investors looking beyond the JSE for returns should be ready to stay for years
Liberty launches global portfolio with exposure to companies in the US’s S&P 500 and European Euro Stoxx 50
Liberty launched an alternative global portfolio on Tuesday that will give investors exposure to companies in the US’s S&P 500 and European Euro Stoxx 50. The company said SA investors are looking for better returns than what the JSE is offering but remain nervous about investing offshore. It therefore launched an alternative portfolio with guarantees.
Business Day spoke to Vimal Chagan, Liberty’s divisional director for investment propositions, to understand why Liberty has become so confident in global markets.
You have not played in this space for more than a decade and now you’ve decided to return. What is the key driver for that decision?
In the structured product space, the last big thing that Liberty launched was Sandton Properties in which we sold off a portion of Sandton City, Sandton Convention Centre. It did quite well. But with products that gave our clients exposure to offshore markets, we tended to get in at a wrong time. I think most of those products were expiring in the global financial crisis. When I say we are getting back into the space, we are taking alternative-type investments back to customers. To take this alternatives portfolio is something new. I joined at the beginning of last year . It did take a while because I wanted to make sure that what we take to the market is sustainable.
You’ve said that in the past you entered at the wrong time. Through this portfolio, you have exposure to US companies at a time when other managers are more cautious about the US. Are you not worried that you might be exposing your investors to the US at the wrong time?
We did think long and hard about it. When investors are investing in mutual funds offshore, they are picking up 40% exposure to the US and 30% to Europe anyway; they are there already. [A total] 70% of your offshore allocation is in those markets anyway. This is just an alternative to that.
So if investors already have their offshore allocation invested in these markets, and you have a global fund at Liberty, what’s the significance of this portfolio?
Let’s say you were in Euro Stoxx for the past five years, you got 2% return per annum and 2% dividends, which add up to 4% per annum. After tax your return will probably be at 3.5% and after fees you’ll be down to 1.5%. People are sitting there saying what’s the point? That’s why we are guaranteeing a 10% [per annum] if there are positive returns, even if it’s 0.1% over the five-year period.
For investors who don’t have the financial muscle to go offshore or those who have a short investment horizon because of many short-term liabilities, do SA equities offer a good investment option, given that many companies are trading at a discount to their true value?
Somebody that can’t stay for five years shouldn’t be looking offshore. Should they be looking at the stock market? Probably not. Take the last five years — people are very disappointed. What they probably need is getting their emergency fund in place. If you are not sure whether you will need the money in three years or five years, I’d say go to multi-asset classes. But looking at your risk profile is just as critical because you get both high-risk and low-risk mule assets.
Alternative asset classes are becoming a big theme among investment managers globally. Would it be better for SA investors to look at those instead of equity?
Leave that to the fund managers. They are knowledgeable, that’s what you pay them to do. If you invest 100% into a hedge fund, you are asking for trouble. It can work or it can go very bad. Rather reduce your return expectation but at least you sleep better at night.
Will you look at other markets besides the US and UK?
We don’t have Asia at the moment. If we’ll ever do it in future, I’m not sure.