YOUR MONEY: Can I profit from both local bond yields and offshore exposure?

Question:

Is there an investment strategy I can use to benefit from both elevated local bond yields and offshore exposure?

— Name withheld

Answer:

Long-dated South African bonds are currently delivering a “clean yield” of more than 10% — even if you opt for a blend of different maturities. Markets are tough at present and I expect interest rates to remain higher next year.

At the same time, with interest rates elevated and growth slower, I think it will be hard to see a repeat of the returns we earned in global equity markets over the past decade. Still, there will be a lot of opportunities in growth and technology stocks, underpinned by US legislation to invest more than $1.5-trillion in infrastructure, semiconductors, science and green energy.

Let’s assume you have about R4m to invest. I’d propose putting between 30% and 40% in long-dated South African bonds with yields above 10% per year. The interest payments on these bonds can be used to supplement your income, depending on your financial needs. Understand, interest on the bonds is fully taxable. Still, even after paying tax the returns are attractive.

The balance of the investment (between 60% and 70%) can be invested offshore in stocks that offer solid opportunities. This way, you have a chunk of your portfolio growing healthily in equities while also earning  income from the bond investments. The reason I recommend offshore is that historically, global equities have far outperformed the domestic market when converted to a common currency.

But, as always, the allocation between bonds and offshore funds depends on your personal appetite for risk.

— David Shapiro, global chief equity strategist at Sasfin Wealth

We’d like to hear from you! E-mail yourmoney@fm.co.za