Investment Focus: Strong offshore diversification

On the back of the weakness of the rand in April, offshore investments were the place to be (in rand terms) as the local currency depreciated 0.8% against a weaker US dollar, 1.8% against the UK pound sterling and 1.1% versus the euro. So far in 2023, the currency has lost 7.9% against the greenback, 12.4% against the pound and 11.5% against the euro, as investor sentiment towards South Africa has grown more wary due to developments like intensified load-shedding, lower growth prospects, the country’s grey-listing and even the failure to extradite the Guptas.

M&G Investments’ global fund range meets a variety of investor risk and return requirements. For example, the M&G Global Balanced Fund produced a 0.2% return in US$ (net of fees) in April, which translated into a 3.1% return in rand (net of fees) from the M&G Global Balanced Feeder Fund. Driving this performance, gains from its allocation to currency and fixed income assets were offset to some extent by losses from certain equity holdings. Adding value were its exposure to the Hungarian forint and hedging of its US dollar holdings into euros, as well as its positions in US Treasuries, emerging market government bonds and the broader global fixed income market.

Within equities, meanwhile, the strongest stock markets in April included the UK, which rebounded from big falls in March, and Japan, where ultra-loose monetary policy is continuing and the weaker yen is boosting exporters’ earnings. Our preference for Japanese and UK equities was rewarded by this month’s performance. However, total gains from Japan, the UK, Europe and US financial stock holdings were outweighed by losses from emerging markets in Asia, global equities chosen by machine-learning techniques and our underweight in US equities (the latter due to its relatively more expensive valuation).

These attributions demonstrate the wide variety of holdings in the M&G Global Balanced Fund, making and its rand-denominated Feeder Fund both strong diversifiers for South African investors with a five-year time horizon or longer. For the three years to 30 April 2023, the Feeder Fund returned 7.0% p.a. in rand terms, ranking it third out of the 15 funds in its ASISA category.