How To Build A Diversified Offshore Portfolio

Savvy investors know that the investment world is much, much bigger than what's on offer on the JSE. finweek s practical guide will assist investors to broaden their baskets offshore.

- Petri Redelinghuys

Investing offshore has always been a hot topic among South African investors. That is probably because South Africa’s economy only makes up a paltry 0.5% of global GDP, and the JSE acts as a gateway to less than 1% of the global investable universe.

The world is a whole lot bigger than just South Africa, and savvy investors in this country know that. They do not want to miss out on the opportunities available, which is why the topic has always been a hot one.

So hot, in fact, that a few years ago we saw a trend among South African companies to acquire assets and businesses offshore. It seemed that everyone was doing it and if you were the CEO of a local listed company which was not expanding internationally, you were doing something wrong.

The reality is, however, that most of the local companies that we all praised for buying golden eggs in foreign markets have ended up holding several rather alarmingly large bags of lemons.

Lesson learned then: do not back a company that is expanding offshore for the sake of expanding offshore. Rather back a company that has pretty much always earned most of its revenues outside of South Africa.

A recent research note published by Dwaine van Vuuren of Sharenet Analytics brought to light that, as things stand now, 57% of the earnings for the companies that make up the Top40 index comes from abroad. Even more interesting was Van Vuuren’s research showing that companies which earn 70% or more of their earnings from outside of SA have greatly outperformed almost every other large-cap share on the JSE since endMarch 2018.

Note in the graphs how Woolworths and Netcare, with their relatively recent offshore acquisitions, are underperformers, while the likes of BHP, Sappi and Richemont – which have been making the majority of their earnings outside of South Africa for ages – are all outperformers.