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Navigating offshore opportunities


Thu, 10/29/2020 - 12:06

South African specific risk has highlighted the importance of diversification. At the same time, COVID-19 has opened opportunities for businesses, many of which might not be accessed by companies domiciled in SA.

So, how does one navigate the offshore environment, and ensure that a portfolio makes sense from a diversification perspective? When we look at foreign markets from the SA investor’s perspective, the biggest risk to diversify is that the local economy will continue to underperform, and that global growth may disappoint. 

Our thinking is not that SA is doomed to fail (there are signs that we may be turning a corner) but rather that our offshore holdings don’t have to perform great if South Africa surprises on the upside, as in this scenario investors’ SA assets will do well anyway.   

Instead, we want our foreign assets to do particularly well in an environment that remains very challenging for SA. Of course, we want our foreign assets to do well too if South Africa performs adequately, but this is not necessarily the most important scenario investors should be concerned about when they put money offshore.

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The PPS Global Equity Fund gives investors exposure to the New Perspective strategy of the partnership manager, Capital Group, which is one of the most successful global investment firms. The PPS Global Equity Fund (in US$) and PPS Global Equity Feeder Fund (in ZAR) gives SA investors exposure to one of their flagship investment strategies.

The Capital Group itself was founded in the 1930s and has unrivalled institutional memory including how to manage money through the Great Depression, the Second World War, the 1970s stagflation and more recently the technology bubble of the late 1990s, the Global Financial Crisis of 2008, and the COVID-19 pandemic of 2020. 

Through this the Capital Group has built an enduring capability in identifying, nurturing and deploying portfolio managers to build on their success, and the New Perspective strategy has been successfully managed since the early 1970s.  As a multi-manager that assesses managers all the time, we can see what a competitive advantage the Capital Group has, and how difficult it is for other firms to consistently replicate their success.

One of the big themes that the COVID-19 pandemic has accentuated is how it has exposed companies (and countries) with vulnerable business models. In our view, SA remains exposed, and although we all hope our country will surprise on the upside, an investment strategy that focuses on companies best poised to benefit from the current environment, rather than companies that look inexpensive, makes sense. In making this statement, we are well aware that ‘bombed out’ value strategies are likely to perform exceptionally well should the world turn out better than expected.

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Fortunately, the Capital Group in the New Perspective strategy combines the insights of several portfolio managers who themselves are given a clean-slate to construct their best ideas. This means the PPS Global Equity Fund will never be beholden to one single idea or style, but rather than it can adapt as portfolio managers are challenged in their thinking, and new ideas come into their funds. This ability to successfully take advantage of different opportunities over a very long period accounts for the incredible consistency the strategy has delivered over time.

The PPS Global Equity Fund and PPS Global Equity Feeder Fund are aimed at making it easier for our investors to access offshore opportunities. The current environment is highly uncertain, but there may well be a place for the allocation to such a fund in one’s portfolio.  

By: David Crosoer, Chief Investment Officer at PPS Investments

PPS is a licensed insurer and Financial Services Provider.

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