With 2018 having been a particularly dismal year for local equities – the worst, in fact, since the 2008 financial crisis – South African investors are increasingly opting to build and manage their own direct equity portfolios in an attempt to take back control, cut out the middle man, and ultimately save money on fees.
Last year, the average South African general equity unit trust fund was down 8.9%, with some of the worst performing funds down as much as 20%. It is this type of dismal performance that has likely led many local investors to question the expertise of the fund managers they have been paying monthly fees to, in order to manage and grow their money.
Direct equity investing
As such, we are seeing an uptick in local investors looking for other options that could potentially yield more value – such as direct equity investing, both locally and offshore.
But while the fast-money world of trading can be alluring, here are some sage advice for first time investors looking to dip their toes into the world of direct equity investing:
- Stocks are an extremely volatile asset class. So, first off, you should be part of a well-diversified portfolio that is geared for the long-term.
- You then need to assess your level of expertise. Stock picking takes an immense amount of fundamental and technical analysis, risk management expertise and it also tests your ‘investor psychology’. While the potential rewards may be enticing, the risk remains considerable and you need to be able to stomach it.
- The third step is to consider your options – and which one is best for you – based on the above, there are various options when it comes to investing in equities.
If you are starting out and don’t have investing experience – or your time is limited and you prefer a fully managed option – you can indirectly hold equities by investing in an Exchange Traded Note (ETN) or Exchange Traded Fund (ETF).
Gaining international exposure
There is an ever-growing variety of these types of options available for all sectors of the local market as well as options to invest in global equities.
For example, our ETN is a South African Rand denominated note, allowing individuals the opportunity to gain international exposure without having to access their annual discretionary allowance.
He also points out that the minimum investment amount is much lower for the ETN than most fully-managed options – making offshore equity investing much more accessible to South Africans.
The minimum initial investment amount is R5,000 – substantially lower than the average $20,000 for fully-managed options.
For those with the risk appetite for equities, the desire to be involved, but a need for guidance or help with solid research, there are managed options that allow you to choose your level of involvement.
This usually involves a team of experts who will guide you through the investment process letting you self-determine your desired level of participation, while making informed decisions.
There are also choices for those who understand the market deeply. Typically, these come in the form of self-managed options where you can purchase stocks of listed companies by yourself.
While we are happy to hand over the reins, we do understand that the risk associated with direct equity investing is high and the complexity of information can become overwhelming at times.
As such, we are always available to execute clients’ transactions or to discuss investment opportunities if they require assistance.