'Smart moneyâ€™ giving offshore hint to retail investors
â€˜Smart moneyâ€™ â€“ large sums committed by institutional investors â€“ is currently giving a hint to retail investors that they should be considering larger offshore allocations. Unfortunately, most individuals ignore the signals.
The market intelligence comes from investment trend-spotters at STANLIB, the countryâ€™s largest unit trust company.
STANLIB strategists have been keeping close watch on inflows into its award-winning International Equity Fund of Funds following the recent Budget in which Finance Minister Trevor Manuel announced an increase in the individual offshore investment allowance from R750 000 to R2.5 million.
This set the scene for top-up investment by retail investors who already show their appreciation of the benefits of offshore diversification by placing a portion of their portfolio into a high-profile performer such as the International Equity FoF.
Fund manager Kent Grobbelaar comments: â€œPerversely, we have seen relatively few individuals top up their investment while several institutional investors have made significant investments with us.
â€œThis can be seen as a hint from the â€˜smart moneyâ€™ to those who are currently under-weight offshore. This is a good time for a re-think.â€
The preferred benchmark for most international unit trust funds is the MSCI World Index. Total returns on this index are up 90% since the lows of October 2002. The MSCI peaks of 1999 and early 2000 â€“ when many South African investors â€˜went offshoreâ€™ â€“ are now being surpassed.
Some international markets are extremely buoyant. For instance, three monthly returns are up 44.3% in Japan, 25.1% in Europe and 20.1% in the USA. China is also racing ahead, showing gains of 40% or more.
Grobbelaar adds: â€œMany observers see continuing value in key overseas markets. For instance, forward price-to-earnings ratios are lower in Europe at the moment than they are in South Africa.
â€œThese factors, coinciding as they do with the Budget announcement of higher offshore allowances, could well have prompted larger commitments into international equity funds.
â€œUnfortunately, itâ€™s not happening to any significant extent at retail level.
â€œOur advice to unit trust investors with little or no commitment to offshore markets is to review their positions and seriously consider their offshore options as a means of diversifying their risk and gaining exposure to some strong economies that have been out-performing South Africa in recent months.â€
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