Wealth Advisory Newsletter

Equities: Why go global?

When it comes to income investing, the past few years have been a bumpy ride for investors. Even traditionally stable assets have been caught out by higher inflation and slower economic activity.

However, these challenges have not been confined to one country or region. So, it raises the question – why should investors consider global equities in addition to their domestic investments?

The complementary role of global equities

Most investors understand the benefits of combining assets with different attributes to reduce risk – but drawing from a wider pool of opportunities can also give investors exposure to exciting investment ideas that could increase potential returns.

Compare the MSCI South Africa Index with the global MSCI All Country World Index, for example.

MSCI South Africa has just 34 constituents representing US$0.2 trillion in market value. By contrast, MSCI ACWI has 2 947 securities with valuations exceeding US$61 trillion. 

In addition, at a sector level, financials and materials account for more than half of the South African index, meaning it is much more concentrated than its global counterpart. The index also has no exposure to information technology, a sector that is rich in companies at the forefront of global innovation.

Global equities offer a broad and deep opportunity set

Key figures and sector breakdown of representative indices for South Africa and global equities

As at 30 September 2023. Sources: Factset, Refinitiv Eikon

Capturing global secular trends

Drawing on a broader and deeper opportunity set offers investors the potential to tap into global secular trends. 

For example, in recent months positive sentiment behind strong returns from tech stocks has been driven, in part, by the potential of practical application of artificial intelligence (AI). One beneficiary has been Microsoft, which has multiple levers it could use to prosper in the age of AI. These include higher demand in its cloud business Azure, to the integration of GPT into its MS 365 Copilot application.

Many European companies have strong track records in healthcare innovation. Denmark-based pharmaceutical giant Novo Nordisk has a leading diabetes franchise out of which it developed the diabetes medication Ozempic as well as the obesity drug Wegovy. Both drugs are seeing soaring global demand. Meanwhile, UK-based AstraZeneca has dedicated significant resources to research and development, building up a strong oncology business and well-developed drug pipeline, which acts as an engine for future growth.

Investing outside of their domestic market allows investors to access the best companies in the world, rather than being limited to local leaders.

Investors considering diversifying their equity exposure through the PPS Global Equity Fund could capture the potential growth of companies catering to global, multi-year trends, which could serve as a complement to their domestic South African investments.

This article is not intended and does not constitute an offer, invitation, or solicitation by any person to members of the public to invest or acquire shares in the PPS Global Equity Fund (the “Fund”). This article is not an offer in terms of Chapter 4 of the Companies Act, 2008. Accordingly, this article does not, nor is it intended to, constitute a prospectus prepared and registered under the Companies Act. The Fund is a foreign collective investment scheme as contemplated by section 65 of the Collective Investment Schemes Control Act, 2002 and is approved in terms of that Act. Recipients who accept the terms of this article warrant that they have approached the Fund on a reverse solicitation basis. Collective Investment Schemes in Securities (“CIS”) are generally medium-to long-term investments.  The value of participatory interests (units) may go down as well as up, and past performance is not necessarily a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending up to 10% of the market value of the portfolio to bridge insufficient liquidity. A schedule of fees and charges and maximum commissions is available on request from the manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. The manager does not provide any guarantee either in respect of the capital or the return of a portfolio. Certain funds may be exposed to foreign securities and as such, may be subject to additional risks brought about by this exposure. PPS Multi-Managers (Pty) Ltd (“PPSMM”) is the appointed asset manager of the Fund and has sub-appointed Capital Group as the foreign asset manager of the Fund. PPSMM is a licensed financial services provider. Financial services may be provided by representative(s) rendering financial services under supervision. The PPS Global Equity Fund is a sub-fund of the Prescient Global Funds ICAV. For more information visit www.prescient.ie