As we entered 2010, there were all sorts of rumblings about what’s going to happen in the currency market. 2009 saw the dollar slide 22.19% against the rand and the regular market pundits would have you believe the rand’s going to break out of the R7.20 – R7.80 band its been trading in for the last five months and weaken.
Even the government has openly expressed its concern over the current strength of the rand. Will new governor, Gill Marcus, attempt to intervene? Will we see the rand ever head back to R11.5880 (its all-time high against the dollar)?
I doubt it. The South African Reserve Bank under Tito Mboweni clearly had doubts about its ability to use interest rate policy to weaken the currency. The trade balance is going to have a much higher impact on the currency.
According to Finweek’s Shaun Harris, there is one fund you might consider if you need to hedge against a weaker rand, namely the Absa Rand Protector Fund. The fund has impressive credentials. It’s had a return of 203.57% over a five year period and 41.44% over the last year.
Its mandate is to “outperform in an environment of a weakening South African currency.” So, how on earth did it put on 41.44% when the currency weakened by 22.19%?
Fund manager Steven Arthur sheepishly admits, “To an extent, we were bailed out by the big rise in commodity prices. Resources make up around 48% of the portfolio.” The fund attempts to save you from rand weakness by investing in around 20 large-cap stocks that have significant exposure overseas. Admirably they take a longerterm view of these shares and attempt to reduce the “churn” in the portfolio. But with such a light “management” touch you‘re be better off investing in a passive tracker like the Satrix 40.
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