Diversify offshore with the Discovery Global Equity Feeder Fund

 

Offshore exposure is a critical component of any well-diversified investment portfolio. Diversification is especially important in South Africa where 25% of the JSE consists of mining companies, according to the JSE's own statistics.

This means that if the client only invests in local stocks, there is little or no exposure to global growth industries - both emerging and developed.

Benefits of investing offshore include:

  1. Investors are able to access global investment themes that are either not available in South Africa or not as diversified as offshore markets. For example, the global pharmaceutical industry is currently estimated to reach US$1.12 trillion by 2022.Investors wanting to access the growth potential of this exciting sector have few local choices. There are three companies listed in the pharmaceutical and biotechnology sector on the JSE's Top 40, one of which is Aspen Pharmacare one of the world's largest pharmaceutical companies. By comparison, the NASDAQ had around 350 major pharmaceuticals listed as at February 2017.
  2. A buffer against rand depreciation. Offshore investments can help investors earn returns in a stronger foreign currency, which when converted back to rands, can provide them with higher returns due to a favourable exchange rate. And if the investor chooses to keep their portfolio offshore, they benefit from diversified currency returns.

What makes the Discovery Global Equity Feeder Fund an appropriate choice?

This fund uses a Four Factor investment approach, which is a unique model that uses key drivers of performance to methodically invest in stocks. Simply put, this means that when the fund managers, Rhynhardt Roodt, James Hand and Jonathan Parker, interrogate a stock for inclusion in the fund, they consider the following four factors or strategies:

  • Momentum: aims to capitalise on an existing trend and identifies stocks where there has been an upward trending price.
  • Value: selects stocks that are trading at less than their intrinsic value.
  • Quality: invests in companies of high quality with management credibility and balance sheet stability.
  • Earnings revisions: looks for shares that are reasonably priced, with expectations of positive, sustainable earnings growth.

The fund invests predominantly in developed markets such as the USA, Europe, UK and Asia and can invest in companies of varying sizes across industries and countries.

This fund is suitable for investors who want:

  • Exposure to global equity markets over the long term.
  • Developed markets exposure - this fund invests predominantly in developed markets to provide diversification from the South African equity market.

What has driven performance in the quarter to end June 2018?

The consumer discretionary sector proved most helpful in terms of relative performance over the quarter with several key holdings rallying off the back of very positive earnings. Chief among these was US jeweller Tiffany, which reported better-than-expected same store sales. This, along with enthusiasm about the company's recent product launches and new CEO, Alessandro Boglilio, who was appointed last year, saw investors bid up Tiffany shares in anticipation that recent results may indicate the start of an earnings up cycle.

The portfolio also benefited from advantageous positioning and helpful stock picking in the energy sector, which was the third largest sector-level performance contributor thanks to the ongoing strength in oil prices. Top-performing holdings in this sector included Chinese offshore oil company CNOOC and US firms Hess and Valero.

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