Technology, health and electrification …


Over the past five years, investors have achieved approximately 5% higher annualized rand returns by investing in the FTSE All World Index than in the FTSE JSE All Share Index. These higher returns were also achieved with lower return volatility.

It’s always a good idea to diversify your assets into stocks overseas to access fast growing economies, global trends and often more importantly, some large sub-sectors not available on the Johannesburg Stock Exchange (JSE). .

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The JSE All Share Index is heavily weighted in commodity stocks such as Anglo American, which by extension means the JSE investor is exposed to Chinese economic demand.

Interestingly, when it comes to technology exposure, the JSE and the FTSE All World Index have similar exposure, but South Africa’s exposure is almost entirely represented by Naspers, which has a large stake in the Chinese company Tencent.

JSE investors may not realize how much exposure they have to a single country.

The FTSE All World Index, on the other hand, includes a much broader mix of tech companies, many of which are exciting growth stocks such as the renowned FAANG stocks – Facebook, Apple, Amazon, Netflix and Google (Alphabet). However, there are also many small, highly innovative technology companies globally spanning all areas of hardware, software and services.

Healthcare is also under-represented in the JSE All Share index.

Health brings an important balance to any portfolio: it is inherently defensive and very well placed to benefit from the aging of the population and from ever-increasing longevity. People are also increasingly health conscious and tend to self-medicate more.

We also favor semiconductor chip companies which are largely concentrated in the United States, Europe and Asia.

There is a global shortage of semiconductor chips, in part due to supply disruptions and behavioral changes due to the pandemic. Global lockdowns have created an increasing demand for personal electronic devices such as laptops and cell phones. Additionally, the growth of digital transformation and e-commerce has driven demand for data centers. And 5G is also driving demand for new phones; its applications are still in their infancy.

Longer term, the secular trend of digital transformation, the Internet of Things (IoT), data centers, electric and autonomous vehicles (EVs) and the rise of artificial intelligence will provide a strong tailwind. for this part of the market.

To capitalize on this trend, we invested in the South Korean company Samsung Electronics, which has the largest share of the semiconductor memory market and is also a maker of advanced processing chips for third parties.

We also invested in the Dutch company NXP Semiconductors, which focuses on the automotive semiconductor chip market part.

Moving away from fossil fuels also presents a thematic investment opportunity. Over the next 20 years, global electricity consumption is expected to increase by 86%.

This means that the electricity produced “green” will have to connect to grids around the world. The rise of electric cars means that commercial buildings will have to be modernized to allow the carrying capacity of a much larger number of cars. Data centers are also very energy intensive and must be designed in an energy efficient manner, which increases the electrical content of these centers.

To play in this space, we invested in Eaton Corporation, an American multinational energy management company.

These themes are expected to drive up prices and attract cash flow for years to come. South African investors should look wider than the JSE to take advantage.

Kathy Davey and Dr James Cooke, Ashburton Investments Global Leaders Equity Fund.



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