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Offshore Investing Can Be Lucrative

One of the earliest lessons a student of investment markets learns is not to let emotion dictate investment decisions. Unfortunately, that’s exactly the mistake most private investors make with offshore investing.

Eamonn Ryan

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The challenge is how to get private investors, mostly wealthy people who invested offshore a decade ago and are in some cases still in the red, to see value offshore.

Traumatic experiences are making many people blind to what is probably the best investment opportunity of the coming decade — the fact that one can buy world-class American and European companies at the same price as fairly average local ones. While the private investor is in danger of missing out, the institutional market is taking full advantage, with pension funds ramping up their offshore exposure to the maximum 25% (with a further 5% allowed for Africa). For instance, Gareth Johnson, branch head of Alexander Forbes Financial Services says institutional investors are investing almost too much in their offshore forays. If these in-the-know investors are so sure of the offshore market, should the private investor not be following suit?

Best Asset Class of 2011/12

John Duncan, technical marketing manager at Rand Merchant Bank Unit Trusts, says: “International funds will possibly enjoy a podium finish this year after disappointing local investors for over a decade. An overvalued rand may still continue to benefit from elevated commodity prices and favourable interest differentials in the next quarter or two but a weaker bias would underpin rand returns for international funds and balanced funds with rand exposure. Investors may have to wait until 2012 for some payback but the fundamentals appear to have swung in the favour of offshore assets.”

For those too-cautious investors who missed the JSE rally, there is still an opportunity to catch the offshore one. During the first seven weeks of this year the US market rose 7%, similar to the increase of the MSCI World index, while the JSE was down 5% (each in dollars) for an 11% differential. In addition, the rand has also weakened somewhat.

Stanlib Retail director Paul Hansen says the US market is up 28% in dollar terms since August last year and 26% in rand terms. “There’s no question private investors have already missed the first boat,” says Hansen, while urging that there’s still time for latecomers.

“The economic recovery in developed economies remains in its early phase, their interest rates remain low and despite the recent rally equities remain at historically low forward valuations of 13,7 times,” he says. In fact, the US market is still at its 1999 level, as is the MSCI World Index (or 2000 level in rand terms).

Last year the enthusiasm was all for emerging markets because of their superior yield to developed markets, but that story has changed in recent months with the impact of inflation. Hansen says he does not expect any improvement in emerging markets until food inflation cools, thereby leaving the field open to developed economies like the US, UK and the rest of Europe.

“The US is anticipated to deliver record corporate earnings by the end of 2011, last seen in 2007, on top of its low valuations. We see strengthening consumer spending, so it is still a sweet spot for equities. Therefore, we still like offshore despite the recent rally. At Stanlib, we’re very overweight offshore equities, and slightly underweight local equities,” he says.

With retail investors running scared of equities, there is little else to appeal in the offshore market: the money market is offering a 0,05% return and the bond market 3% to 5%. Stanlib reckons the average investor should prudently have 20% to 30% of their total assets offshore, within a wider range of 15% to 40%. Stanlib head of offshore investments, Anthony Katakuzinos, says the rationale for investing offshore should not require any further explanation than the facts that South Africa accounts for barely 2% of the global economy, we’re an emerging market, and we remain highly concentrated on commodities.

“Offshore gives you exposure to a lot of key industries that simply do not exist on the South African markets, and at valuations that compare favourably with local listed companies. Furthermore, offshore gives you exposure to other emerging markets.”

Incredible statistics abound, with China boasting 850 million mobile phone users and now overtaking Japan to become the world’s second-biggest economy. Brazil has added 2,6 million jobs to its formal sector alone in 2010. Investec Asset Management reports that returns to date have vindicated this approach, with developed markets delivering a disheartening -2,9% to rand-based investors over the decade ended 31 January 2011, while emerging markets surged 128% and South Africa delivered an astonishing 197% over the same period.

“The nature of diversification is that countries all perform differently, so it stabilises a portfolio,” says Katakuzinos. Recognising the bad experiences that many investors have had offshore, he says people have to put that behind them, just as they have to put any sort of poor investment behind them or miss out on future opportunities.

“Back in 1998/99 at the height of the offshore dot.com bull market, valuations were 35 to 40 times, whereas today the MSCI Worldwide index is 15 times, and on a forward earnings is only 12,5 times. In addition, the rand is extremely strong compared to a decade ago — so the circumstances are vastly different.”

Given that retail investors remain highly cautious and conservative following recent market volatility, Katakuzinos points out that property funds are currently offering superior returns to vanilla cash investments for the conservative investor. “They’re showing reasonable yields of 5% to 7%, compared to less than 1% on the money market,” he adds.

Currencies Count

For cultural reasons, South Africans tend to look first and foremost at the US dollar, the British pound or the euro as a distant third, when it comes to selecting a currency for their offshore investments.

Tristan Hanson, head of asset allocation at Ashburton, describes what he calls ‘some very interesting alternative currencies’. “We tend to like currencies in emerging markets at the moment, especially in emerging Asia. Through our products we are in a position to give clients exposure to currencies such as those of China, Korea and Malaysia, which we believe will appreciate over the long run.” Unlike the rand (and currencies of developed economies) these currencies do not float entirely free but are closely managed by their central banks, primarily against the dollar, reducing volatility.

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

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1 Comment

1 Comment

  1. joe johnston

    Jun 22, 2011 at 00:27

    I think when you say that pegging a currency against another one reduces volatility, that is a subjective statement. It could go either way, up or down and the risk you now carry is not in your own economy’s strength, but based on another economy’s strength. Your currency might be less volatile for speculators to hurt, but in terms of risk, it’s much greater. Even though I said risk, consider the domino effect that could take place if the dollar tanks. If that ‘tanking’ does occur ( it’s not unrealistic to state that the US economy is on thin ice ) then all those asian currencies are going to see speculators milk them like obese cash-cows turning into drought-stricken cattle.

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(Infographic) The 10 Things You Should Cover In Every Investment Pitch

If you want to wow potential investors, you need to cover your bases.

Matthew McCreary

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If you’ve ever watched Entrepreneur’s original series, Elevator Pitch, then you’ve probably seen smart founders make dumb mistakes while pitching their ideas to potential investors. They might flub an answer or get tongue-tied, or they might just be a little boring. Other times, you might notice that something seemed off about a pitch, but you can’t quite put your finger on why.

Investors are gambling every time they put money into a new project or idea. Your job when pitching is to prove to them that you’re worth the risk. That means you’ll need to not only show them the possible upside of what they have to gain, but also be clear about what they could possibly expect to lose and their odds. In other words, you need to give them a holistic view of what you do, not just the one good idea.

You might have pitched an investor yourself and thought you crushed it, only to hear that the investor isn’t interested. If that’s the case, there’s a chance the pitch was missing one of 10 essential elements.

This infographic by Buffalo 7 breaks down 10 slides you should have in your next investment pitch deck. If you’re not presenting formally, though, you can still keep track of these aspects in your head and make sure you cover each one. They include:

  1. The vision, where you concisely explain your idea.
  2. The problem. Why is your vision necessary or helpful?
  3. The opportunity. What is the market size, and how can you position yourself to earn a share of it?

Related: How To Pitch Your Business, Product Or Idea To Industry Experts

This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.

1541174287_investment-pitch-infographic

This article was originally posted here on Entrepreneur.com.

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‘Shark Tank’ Investors Reveal Top 5 Tips To Make Your Business Famous

Is your business worthy of fame? If so, pay attention to what the Sharks have to say …

Eric 'ERock' Christopher

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Shark Tank enters its tenth season as popular as ever. Over the past decade, millions of people have watched fascinated as entrepreneurs pitched their business ideas and startups in the hopes of winning an investment and support from self-made millionaires and billionaires.

The multi-Emmy® Award-winning reality-based show has had a tremendous impact on the business world and has been a major influence on the increased popularity of becoming an entrepreneur. Over the years, the show has evolved into one of the world’s top platforms to launch a business and recently reached an astonishing $100 million in deals offered in the Tank.

I was recently invited to attend a private event hosted on the set of Shark Tank to celebrate their 10th season and met with all the Sharks and most of the guest Sharks for the current season. This year’s guest list includes luminaries:

  • Charles Barkley, Hall of Fame NBA star and TV analyst
  • Alex Rodriguez, legendary baseball player and businessman
  • Rohan Oza, an iconic brand builder and marketing expert
  • Sara Blakely, founder and owner of SPANX brand
  • Matt Higgins, the co-founder and CEO of RSE Ventures and vice chairman of the Miami Dolphins
  • Bethenny Frankel, TV celebrity, author, and founder of Skinnygirl brand
  • Jamie Siminoff, the CEO of RING, who rejected an investment offer in season 5, but went on to sell his company to Amazon for a whopping $1 billion.

My better half was also invited, and we arrived promptly on time at Studio 24 inside of Sony Pictures Studios in Culver City, CA. We were greeted by the cordial staff who informed us that the Sharks were still filming the last takes of the day. After several minutes, we were invited to chat with the Sharks on the main floor where nervous entrepreneurs excitedly pitch their companies to the investors under the bright lights of the studio set.

I was curious to know what excited the Sharks the most about their tenth season and what they believed to be the best advice for an entrepreneur to help make their business famous.

1. Create an ingenious product

When asked, Lori Greiner said, “It’s a mix, right? Of smart marketing and ingenious product. For example, Scrub Daddy was a technology. So, taking that one sponge, which was revolutionary, changed the whole sponge arena. We now have, to date, 20 different SKUs, and we have 30,000 new retail locations and 170 million in sales. That’s what takes it from one idea to a global brand.”

Of course, skillfully promoting your product on a platform like QVC is another excellent way to make your business famous. The day after the Scrub Daddy episode aired, Greiner helped CEO Aaron Krause sell their entire inventory of 42,000 sponges in less than seven minutes on QVC.

Related: 6 Great Tips For A Successful Shark Tank Pitch

2. Leverage social media marketing

barbara-corcoran

During my chat with Bethenny Frankel, she stressed, “Social networking is so important. Also being a little bit disruptive now … and you have to be creative. You have to be creative. The President was the most disruptive candidate that there’s probably ever been in history. He got people’s attention, and young entrepreneurs need to get people’s attention in some way. So be a little disruptive.”

Matt Higgins responded, “I’d say that you have to understand social and digital marketing. You can’t survive unless you understand Instagram, Snapchat or all the tools out there. You have to be contemporary.”

Barbara Corcoran claimed, “Every one of us successful entrepreneurs, for the last two years, were phenomenal at social media. It’s true. No exceptions.”

No smart entrepreneur will deny the power of social media when it comes to making your company famous. With more than 2 billion people worldwide using some form of social media, any business can put their business in front of a large audience, especially if they can create content that goes viral.

3. Build a community

Daymond John stressed the value of building a community. “You’ve got to build a community,” stated John. “Nobody needs to buy anything new in this world. They only buy it because there’s some form of community and/or need that you are supplying for them.”

John speaks from experience. He built a successful clothing empire by creating a vast community of his own via his clothing brand FUBU. John wisely invested in celebrity endorsements, making him an early pioneer of modern influencer marketing.

If you lack the resources to build your own community from scratch, you can leverage the power of others. Partnering with influencers who have cultivated their own communities allows you to introduce your product or service to larger audiences. In fact, some consider Shark Tank to be the world’s largest business influencer platform.

4. Devise a publicity hook to win earned media coverage

Barbara Corcoran also said, “I’d say you need a publicity hook. Some hook, angle or gimmick that grabs the attention unfairly from your competitors.”

Remember, Shark Tank is a unique combination of reality television, business acumen, and entertainment. Doing something unique, different, or disruptive can get you significant media attention and abundant free publicity… especially if you’re able to leverage that publicity and captivate the show’s producers, who decide your fate as to whether you’ll appear on the show.

Regardless if you want to appear on Shark Tank or not, being featured in the media is a way to differentiate your business from the competition and reach a broader audience. Be creative and willing to take educated risks when it comes to getting noticed by the media. You should always be actively building relationships with media representatives and ask for their insights when formulating your plan.

Related: Shark Tank Funded Start-up Native Decor’s Founder on Investment, Mentorship And Dreaming Big

5. Know your strengths and stay focused

When I asked for billionaire Mark Cuban’s insights, he thoughtfully replied, “Knowing your unique advantages, play to that, and your strengths. And focus. You know, what happens is very often people start with an idea, get a little bit of traction, then it gets hard. And when it gets hard, they start looking for other things to do as opposed to playing to their strengths. Because businesses aren’t supposed to be easy. You know, if they were easy everybody would already be rich, and we’d all be sitting on a beach somewhere. And so, when it gets tough, you gotta dig in and work hard. I’d say the final thing I’d add is that sales cures all. There’s never been a business that succeeded without sales. So, if you focus on selling … if you’re able to sell … and that’s something that is one of your core competencies, then you’ll be okay.”

These are wise words from one of the world’s few billionaires.

This article was originally posted here on Entrepreneur.com.

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The Best Way To Get Your Teenager To Start Investing Right Now

Jeff Rose advises a young fan on where to start his investment journey.

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In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.

Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.

In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.

As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.

Related: Making International Investing Simple And Transparent – CybiWealth Digital Platform

Click on the video to hear more tips for a younger investor.

This article was originally posted here on Entrepreneur.com.

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