As a South African investor, you likely feel uneasy when financial headlines highlight a weakening US dollar – especially if your investment portfolio includes exposure to US companies.
That’s understandable because currency movements can feel like a direct threat to your offshore investment returns, particularly when the rand strengthens at the same time.
Fortunately, USD weakness is not automatically bad news for long-term investors in SA; it’s rarely a reason to panic (or abandon your sound, global investment strategy).
Four reasons to stay calm (and invested)
- Investing in US companies is not “holding dollars” – it’s buying ownership in companies with real assets, earnings and long-term growth potential. Many of the largest US-based companies, particularly in technology, healthcare and consumer sectors, earn a significant portion of their revenue outside the US. When the dollar weakens, those offshore earnings can translate into higher reported profits in USD terms and help support share prices over time.
- When investing in offshore funds, unit trusts for example, it’s worth noting that a fund’s currency and its underlying investments are not the same thing. Many global funds are USD-priced as the fund currency, but that does not mean the fund is “invested in USD” (or even in US-based businesses). These funds often simply use the US dollar as a common pricing base while holding assets across Europe, the UK, Japan and emerging markets because the USD is the most traded, liquid currency worldwide, making it efficient for institutions to trade across borders. In short, the USD is used because it is practical, not necessarily because the fund is making a single-country bet on the United States.
- For South African investors, another key point is that investment returns depend on rand performance, too. The USD may weaken against major global currencies while behaving differently against the rand. The rand’s value is affected by commodity prices, inflation expectations, political developments and capital flows. This means your offshore results are influenced by multiple moving parts, not just a single headline about the dollar.
Our approach: global, diversified, active…
At Netto Invest we recommend that your investment portfolio be globally diversified. This reduces concentration risk, which helps your portfolio remain resilient despite changing environments. The end result: your wealth will never be dependent on the performance of one country, one currency, or one market theme.
The active fund managers we work with take currency risk seriously. They know how USD movements can influence your global portfolio. They continuously assess market conditions and adjust positioning where appropriate as part of their normal investment process.
And… sustainable
Ultimately, long-term wealth is not built by reacting to short-term currency moves. It is built by staying invested through cycles, remaining diversified, and sticking to a plan. If your offshore allocation forms part of a balanced strategy, the best response to USD weakness is usually the simple one:
- stay calm,
- stay disciplined,
- let the strategy – the one you selected via a rational, thoughtful process – continue to do its work.
Cameron McCallum, CFP® CA(SA)
Managing Director, Wealth Manager
