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26 Nov 2018

Dear Client


  1. We have a few clients who have immigrated to other countries through the years, like Germany, the UK, Canada and Australia, with relatively strong currencies, compared to the USD, where they can consider to move most of their local funds to our Moriah Global FoF, without it being effected by currency volatility, as these countries don’t have the same currency volatility, as emerging market currencies like that of South Africa. Our clients in South Africa should have a certain amount of their investments denominated in ZAR, because when they need income or capital, under circumstances where the Rand appreciated, after a period of huge depreciation, the comeback appreciation of the ZAR, during the particular year when the client needs income or capital, can cause the client to dig into his capital. It is normal for the Rand to depreciate at a pace of about 5% against the USD, but where the Rand has depreciated because of Socio-Political pressure, for instance year to date from January 2018 to 31 October 2018 with more than 20%, one can expect the Rand to make a comeback during 2019, with up to 15% and for a South African to make a withdrawal from our Moriah Global FoF shortly after such an appreciation may cause him to dig into his capital for that year instead of taking profit. Under these circumstances it would be better to make a withdrawal from your South African fund and therefore we advise that South Africans should have a minimum of about 20% in South Africa.


  1. We used to say that clients should have at least 30% offshore, but many economists have been advising over the past few years that clients should increase their offshore exposure to at least 50% - 60%. We also advise clients who have cash in ZAR to move it offshore.


  1. We are not aware of South African Fund of funds that have been comparable to Moriah Global FoF, which have been giving excellent returns over the past 5 years, nett of all fees!












YTD up to 31 Oct 2018



  1. Clients with cash should maybe consider to wait for the Rand to strengthen even further, but clients who are invested in a quality Hedge FoF, like our Kanaan Hedge FoF and quality unit trusts, like our Kanaan Bci Balanced FoF, should not make withdrawals now at rock bottom.


  1. Investor patience has been sorely tested in the past few years: not only hedge funds, but the local equity market, as a whole, has put in one of its worst five-year return performances in history. We would all, therefore, do well to remember Warren Buffett’s comments on such matters: “The stock market is a device for transferring money from the impatient to the patient”. Buffett is 10% behind the S&P over the past decade, so his own investors are also exercising patience, remembering that over the past 30 years Berkshire Hathaway has tripled investors’ money relative to the return from the S&P 500.


  1. I believe there is good reason to be patient with the SA equity market, because it presents excellent value at current levels (as at the end of October 2018) and the economic cycle appears to be in the early recovery phase. We believe there is genuine potential for an improvement in GDP growth and a concomitant recovery in equity returns if even a subset of the government’s plans come to fruition.


  1. Most economists say that a hollowing-out of the vital institutions such as the National Prosecuting Authority, the looting at state-owned enterprises and the failure to reform the supply side of the economy, all conspire to constrain growth at a time when the global economy was accelerating. They now observe the green shoots of improvement pushing through, with Cyril Ramaphosa co-ordinating a strategy to reverse and remove these economic roadblocks.


  1. They say that if they investigate exactly how much we are now paying for assets on company balance sheets, as measured by the market’s ratio of price to book value, relative to history, this is cheap at 1.7 and historically when the ratio has been trading at 1.7 it has subsequently produced a 5-year nominal return of 20% a year (the probability distribution midpoint statistically).


  1. They admit that inflation was high in the past and therefore do not expect returns of the above-mentioned level, but low double digits are definitely achievable if growth can rise even modestly!


Friendly greetings



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