So what are you waiting for (redux)1?
It is said a picture is worth a thousand words. The picture below can be summarised more briefly:
An annual shilling return of 33%
The chart shows last year’s performance of the Star Capital Global Balanced Fund in both US dollar (its native currency) and Kenya shilling2. The dollar return is a respectable 10%; the shilling return is 33%.
The optimal offshore allocation for a Kenyan pension scheme is 40% to 60%, in a well-diversified multi-asset class allocation. The RBA limit is 15%, far below the optimal, so allocation should be at the limit. Such offshore allocation translates the 33% return to a 5% contribution to the entire portfolio. Such a high contribution from the 15% sliver will have provided offset to the negative returns from local fixed income and local equity.
The performance of the Star Capital Global Balanced Fund can be compared against local performance, as shown in the chart below. It is not a fair comparison, the Star fund is multi asset – equity, fixed income and commodity – and hence medium risk whereas local equity is high risk. But the outperformance is stark: 61%. This is the benefit of diversification.
Offshore investing brings both return and diversification. The best time to invest offshore was a year ago. The shilling was gaining momentum in its monotonic and unstoppable depreciation. And the global markets had stabilised after the ending of the quantitative-easing regime and had started performing. The best time to invest offshore was a year ago; the next best time to invest offshore is today. So what are you waiting for?
Andrew Slater FIA CFA, CIO Star Capital
1 The original article is at https://starcapmgt.com/so-what-are-you-waiting-for/
2 Annual gross return to end August 2023 in USD is 10.08% and in KES is 33.54%. Past performance is not a guide to future performance.
