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Investment Strategy
Wednesday, October 21, 2015 - 02:16
Opening the door

The South African stock market makes up just less than 1% of global stock market capitalisation. Considering the small size of this market and that local shares are relatively expensive, Marriott is of the view that investors who adopt a global investment mind-set will be well served from both a diversification and valuation perspective. The chart illustrates the relative size of stock markets around the world:

“Based on current first world market valuations it is possible to invest in some of the largest and most recognizable companies in the world on yields higher than South African equities,” says Lourens Coetzee, Marriott Asset Management. “These attractive yields afford investors the opportunity to diversify internationally and improve the overall quality of their portfolios.”
Nestlé is a prime example of a quality company investors can choose to invest in when adopting a global mind-set. With over 2000 brands and 10 000 products, Nestlé sells over 1 billion products daily, making it one of the most prolific companies in the world. Its success can be attributed to the nature of its brands, which allows the company to form part of the day-to-day lives of people around the world. Nescafe, for example, is the world’s best-selling coffee brand and accounts for 44 percent of the instant coffee market. Consumers around the world drink on average 5500 cups of Nescafe every second of every day. Other examples of Nestlé brands include Maggi 2 Minute Noodles and Kit Kat - 5.2 billion packets of Maggi Noodles are sold every year and 650 Kit Kat fingers are consumed every second of the day.

“Although there are many quality South African listed companies, none can equate to Nestlé in terms of size, track record, global diversification and number of brands,” says Coetzee. “A global investment mind-set opens the door to these quality companies.”
With the JSE All Share Index currently at historic highs (above 50000) and dividend yields below historic averages, we feel investors looking for good returns from the South African market could be disappointed in the years ahead. The South African equity market in general offers little value; however, our outlook for certain global equities is very positive.
“Equities are also attractively priced relative to bonds and cash in first world markets,” he says. “Very low interest rates means investors can currently receive more income from equities than government bonds and money in the bank. This is a very rare occurrence as equities, unlike bonds, also provide investors with income growth, which ultimately translates into capital growth.”
The chart – Select Multi-national Blue Chip Companies – Source: Marriott Asset Management - compares the yields of Proctor & Gamble, Nestlé and Johnson & Johnson to the yields of the US 10 year Government Bond and US cash.


In summary, the case for investing in first world equities remains compelling as the yields of high quality multi-national companies are currently higher than first world bonds as well as South African equities. A global mind-set will allow investors to take advantage of this opportunity and improve the overall quality of their portfolios.
 

Copyright © Insurance Times and Investments® Vol:28.10 1st October, 2015
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