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It's My Money with Arin Ruttenberg · Strictly Business

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You're listening to Strictly Business Podcast with Lindsay Williams.
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This edition of It's My Money is brought to you by Brenthurst Wealth, your partner
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for global wealth creation.
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Welcome to It's My Money.
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It's My Money is brought to you by Brenthurst Wealth, South Africa's
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multi-award winning boutique wealth manager.
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This week I'm speaking to Aaron Ruttenberg and his article,
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which is about to be published and we'll give you details later, is I think quite
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rebellious.
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The headline is the JSE is outperforming.
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Here's why that's not the point.
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Aaron's with me now.
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Aaron, please explain.
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Hi, Lindsay, and hi to your listeners.
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I think it's a very important point.
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I think a lot of people are looking at the
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JSE's outperformance of offshore markets over the past year and are wondering why
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they're not in the JSE.
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And that's just typically the behavioral finance that we get.
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It's not about performance, but it's about the behavior that drives performance.
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individual behavior is always what detracts returns more than anything.
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So when you look at the recent performance, obviously, it's been around
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40%
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versus the global world index at 15%.
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And the recommendation is rather than try and switch your entire
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portfolio, which would be poor advice,
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it's to make sure you are adequately diversified, because there's always a
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portion of one's portfolio.
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that will out that will underperform another portion that's true
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diversification i think i can't remember the other person that i
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listened to that said true diversification is actually disliking part of your
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portfolio okay
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so let's get back to basics because when people say look at the all share index or
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look at the
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top 40 index isn't the jsc doing well
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it's not doing well if you break it down look let me say it again it is doing well
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But with a few caveats.
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One of the caveats is the US dollar.
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And I used to know a chap in London, and he used to say to me, Lindsay, look at
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gold through yen spectacles.
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Now, he was a bit mad, but at the time, he was right.
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But what you want to do is look at the JSC through dollar spectacles.
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That's correct.
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And I think when the article is published, there's quite a significant amount of
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information because I like to talk.
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you When you price South African wealth in dollars, the currency in which most global
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goods and services travel,
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education ultimately denominates it, etc., a very different picture emerges.
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Over the past 17 years, South African wealth measured in dollars has declined by
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approximately 30 to 40
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percent in purchasing power.
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So the rands moved from rough parity, one-to-one with a dollar in the
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1970s, to more than 17.1 today.
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You know, it depends on the day, but nominal rand returns, however impressive
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they might be,
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must be viewed through the dollar lens.
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It's not a pessimistic framing.
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It's actually an accurate one.
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The question for any wealth management strategy is not what the number says in
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rands, but what it buys in the real world.
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And that erosion is silent, just like inflation, but it's relentless.
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The other one that really caught my eye in your article is the following.
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And this is really, really huge.
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It says the following.
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A commodity windfall, not a structural recovery.
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In other words, the JSE has been driven by a few, a very few counters.
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In other words, it's been very narrow.
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It hasn't been a broad-based recovery and therefore the structural recovery that you
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speak of is not there.
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It doesn't mean to say it's not going to be there.
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It's not there yet.
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So we have to be very careful when we have a look at the JSE and say it's doing well
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because yes,
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it is doing well on a statistical basis.
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which has been devised by other people, but in reality, it's not doing that well.
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Well,
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we need to really dig deep into what the JSC is actually made up of and constructed
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of, and how this country, South Africa, earns its revenues most importantly.
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And that's essentially glorified mining type of country.
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So, you know, gold's hit record highs above 5,000 pounds, along with elevated
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prices.
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for manganese and copper in the same period South African manufacturing has
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contracted by 4%.
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The market's booming.
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The economy is not booming.
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I mean, Magnus Heistek even described it in an interview where it's a temporary
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commodity
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windfall rather than a reversal of a long-term structural decline.
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That's where we're looking, and we're seeing that structural decline in how we
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are able to buy things internationally.
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And the structural case for you know things like you know global
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diversification
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Most of the African equity funds are fishing in the same pond.
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So it's a very small one, Naspers, Richemont, et cetera, a handful of banks
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maybe, and some miners.
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The results that their returns converge almost regardless of the management
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quality.
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So offshore, by contrast, investors access higher growth sectors like AI, biotech,
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and blockchain.
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You can't get that here, as well as specific regional players, Japan, which
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has done phenomenally well.
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2% in dollar terms, reaching all-time highs.
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So parts of even Africa, excluding South Africa, return better in dollar terms.
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So these are opportunities that are largely unavailable through the JSE.
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Are you saying that when I came to South Africa in 1988 and it was a commodity
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country and the RAND was a commodity
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currency, and when in 1970 South Africa produced 1,100 tons of gold,
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And it was a commodity country and the RAND was a commodity currency.
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Are you saying that nothing really has changed since then, Aaron?
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Because we haven't diversified enough in order to make ourselves a player when it
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comes to
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stock market performance.
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In other words, having SA Inc.
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companies that are doing really well and challenging the commodity counters.
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That's correct.
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In fact, what has changed is that it's gotten worse.
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because our commodity plays can also be purchased offshore.
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They don't have to be purchased locally.
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And that's just the commodity side.
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So, you know, you've got Anglo Gold, BHB, Glencore, Anglo American.
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They're secondary listed here.
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So when you look at people that we need to invest, offshore people, you know,
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investors that we need to bring money into the country, sometimes they don't have to
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go and bring money into SA.
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They can just invest.
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on those counters offshore rather than locally here,
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bringing their money back where the actual rand may even weaken further.
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And then it would be all kind of costly.
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So things have changed, to answer your question.
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It's just they've changed for worse.
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And there's a lot of bureaucracy when it comes to all the mining and what can be
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done in the red tape.
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And we've just fallen flat.
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We're not even in the top gold producers of the world anymore.
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I mean, there are other countries that produce like Australia.
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And whilst we don't get that correct from a political standpoint, and I won't get
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into politics, but it is a problem.
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We can't maintain our shine like we did.
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Okay.
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And just to finish on that note, we have to say that throughout history,
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commodities are cyclical.
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They go up and they keep on going up and the news gets better and it gets better
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and better.
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And then just before the top, the mining houses decide that they're going to...
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expand their mining operations or they're going to buy another company in some
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far-flung land to increase
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production and then that is when the price peaks.
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Let's talk about politics now because you don't want to talk about politics but you
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do mention it.
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You say the South African government debt is approaching 80% of GDP.
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That has got an influence although we have been treated fairly favorably with getting
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off the
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gray list and also upgrade from rating agencies but still a problem.
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The problem is there in the background, Darren.
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Exactly.
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So like you've said, South African government debts approach 80% of GDP, and
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we've got a shrinking tax base.
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I know plenty of people that have left this country because they are looking to
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start up in other countries.
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So this tax base is small, it's getting smaller,
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and most of a very small part of the population contributes to that tax base.
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And if it shrinks, or even isn't even allowed to grow, people that are leaving
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that haven't even started paying tax.
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That makes it even worse.
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The long-term structural risks to domestic assets therefore remain real.
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Moving a meaningful portion therefore offshore is obviously not a speculative
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call.
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It's a defensive one.
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And at the same time,
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there is an interview that Magnus speaks about in his 20 to 30 minutes with Rob
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Hersoff, great interview,
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discussing more of those politics.
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And yeah, that's just to answer that question.
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I think it's a bit more nuanced, but...
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We structurally, when you come and look physically at dilapidating infrastructure,
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we really realize that,
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you know, the JSC is relied on the commodities.
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It's also relied on a handful of offshore companies already with a 75%
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when you include the exporters and when you include the primary companies that
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are, well,
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the secondary companies that are primarily listed offshore.
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75% actually is offshore already.
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And these companies have gone and looked through an offshore.
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We've gone offshore to try and get more capital because of what's structurally
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happening here in South Africa with a very
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small tax base and a high unemployment as well.
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Let's not forget that.
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They say the following.
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There are lies, damn lies and statistics.
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But you've given me two decades of data in this article.
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So briefly summarize them, please.
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So I did two sets of 10 years, right?
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Because we've seen quite a good picture for the JSE on the past year.
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And we've seen a good picture for the JSE even in 2023 and 2024.
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So you look across the 10 years, the previous 10 years, and I've compared it to
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the All Country World Index,
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which is just a better benchmark.
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It includes all the countries of the world, developed and developing.
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And over the past 10 years, the All Country World Index has done 13.
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percent and the or and the south african stock exchange the jc has done 12 percent
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um in rands and that is
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one percent differential so the all country world index still wins it's a
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small gap but then you go and look at the
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previous year the
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previous 10 years before that and the jse did 9.61 percent and the all country
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world did 18.19 so that's quite significant it's double the returns and
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that's not including...
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you know just saying that the s p 500 or the nasdaq that would have done even
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better but we need to be very much more
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diverse about across the globe so i'm using the all country world index you add
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that for a period of time and then the
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compounding becomes significant so even
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like the past the great returns that the jc has given over a couple of uh periods
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over the past 10 years there's still a
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one percent with there's still a one percent alpha within the all country world
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index which is quite interesting Yeah,
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the data cannot be ignored.
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You say a diversified global allocation is not a recommendation to exit South Africa.
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A lot of people have said to Magnus, who you've mentioned a couple of times, that
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he's anti-South Africa,
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he's not patriotic, which is, of course, a lot of nonsense.
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He's been proved right over the years as a representative and founder of Brenthurst.
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You're saying exactly the same thing.
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And I think what you're saying here is that someone's portfolio is
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is a bespoke affair rather than off-the-shelf affair.
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So you sit down with a client and say, okay, this is what your income is, this is
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what your disposable income is,
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this is what your investment income is, and we'll start from there.
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What are your aims and what are your aspirations, I suppose?
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Exactly.
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We're not being paid to be patriotic.
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We're being paid to make clients money so that they can retire in global terms.
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If they want to travel, if they want to...
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watch Netflix, if they want to have their Apple phone or Samsung, whatever it is.
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So, you know, it's not about exiting South Africa.
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South Africa plays a good point in any diversified portfolio because of what
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we've seen.
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But it's actually a well-constructed portfolio, depending on one's needs and
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time horizon.
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Of course, there's people that are different and have different risk profiles
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and time horizons and needs.
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But it's a well-constructed portfolio.
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It needs to hold local and global exposure.
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It needs to...
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be sized appropriately to each investor's circumstances.
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The offshore component serves as a structural role, purchasing power
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preservation, access to deeper and more diverse markets,
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protection against long-term currency erosion.
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And, you know, there's no short-term return comparison between indices that can
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capture or replace.
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So the JC can have its best year in memory.
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The case for global diversification, as I've said, for many reasons, remains
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unchanged.
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Yeah.
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That's how you end it, actually.
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I was going to read that myself, but thank you for doing it for me.
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So business as usual, it doesn't matter whether the JSC has a good year or a good
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two years.
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The fact is that long-term diversification in other geographies is the way to go.
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Exactly.
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As well as looking for investment opportunities when things are going down.
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If you've got a long-term time horizon and you're still growing capital, embrace any
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down period.
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Embrace COVID.
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brace the Trump tariff tantrums.
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Embrace the 2022 Ukraine crisis.
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I know it's a crisis.
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I'm talking from an investment point of view.
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We didn't get the same type of embracement with this Iran war.
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But anytime the market goes down and you can buy things cheaper,
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treat it as if it's the same as a sale at your favorite retailer.
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Go and buy.
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So yes.
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The one last comment I want to make, and it suddenly struck me, is that if you look
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at the JSC and you...
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look at the JSC's recent history and look at the listings.
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Okay, there's been some listings, but nothing of any consequence.
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There aren't any AI companies coming to the JSC.
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Remember when Dimension Data came to the JSC and there was a flurry of tech stocks
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coming in.
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We don't see that anymore, Aaron.
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I'm not saying the JSC is a dead exchange, but what I'm saying is it's not being
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boosted by companies that,
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for example, I don't know, the NYSE or the...
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NASDAQ or any other index in the United States is enjoying.
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People are coming to America to do their business.
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They're not doing their business in South Africa and that affects the JSC.
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Exactly.
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We're shrinking.
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We need liquidity.
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People looking at the management.
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Warren Buffett looks at the management of a company.
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The management of our country has not managed the country's finances correctly,
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just like any company.
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So people are looking to raise capital in different jurisdictions.
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We're looking at now you know spacex is going to list it doesn't matter what it's
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going to list at
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it's going to list anthropic which is an ai company
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open ai these are all being listed offshore and for good reason because
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there's money There's capital,
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there's more trusted management, despite what you think, needs to be listed
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somewhere, and it's not being listed here.
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So we get a lot of these types of queries and questions, and that's the same thing.
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You know, that's why we go offshore, because we can find those opportunities.
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Aaron, great chat as always.
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Thanks very much for your time.
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Aaron Ruttenberg is from Brentos Wealth, and that was It's My Money.
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It's My Money was brought to you by Brentos Wealth, an award-winning boutique
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wealth management company.