Local v Offshore: Piet, Magnus agree on portfolio structure, warn on marketing scams

Two years into the R1m challenge to settle which is better, JSE or global investing, the performances of protagonists Piet Viljoen and Magnus Heystek have significantly narrowed. Following a flying start, Piet’s “Local is Lekker” portfolio has stalled, with Magnus’s offshore-focused investments clawing back after a horrific first few months. In this half-yearly recap on the Challenge, there’s a surprising amount of agreement between them – including a shared warning of how marketers of financial services promote finite-time concepts whose results are bad for investors. They spoke to Alec Hogg of BizNews.

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Relevant timestamps from the interview

00:00 – Introductions
02:52 – Piet Viljoen on the challenges he’s faced
04:25 – Magnus Heystek on his slow start and how is portfolio is looking now
07:07 – Piet Viljoen on the slow growth across both portfolios, why the investor doesn’t need to lose sleep
10:06 – Magnus Heystek on investing in SA, the benefits of a 50/50 local/offshore portfolio
13:09 – What next for Piet Viljoen
16:45 – What next for Magnus Heystek
19:10 – Piet Viljoen on value in the SA market
20:21 – Magnus Heystek on possible changes to his portfolio
21:58 – Concludes

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An edited transcript of Alec Hogg’s interview with Piet Viljoen and Magnus Heystek

Alec Hogg: Welcome back to our Local vs Offshore investment challenge featuring Piet Viljoen and Magnus Heystek. We’re almost two years into this million-rand challenge, where each participant has been given R500,000 to invest. Piet had an early lead, but things are getting much tighter. Piet, you run the Merchant West Value Fund and advocate for local South African investments. Magnus, you favour investing money offshore. Let’s discuss the journey so far.

Alec Hogg: Two years in, Piet’s R500,000 has increased by 5.5%, now amounting to R527,346. Magnus, your R500,000 decreased by 13% and now stands at R434,008. The markets haven’t been kind to either of you. Piet, you were ahead initially; what happened?

Piet Viljoen: The initial growth was pure luck. We started the challenge at a time when South African assets were doing well. But investment is about the long game, and while we’ve seen some hurdles recently, I still believe that current valuations make South African assets a good bet for the future. Timing in investments is hard to predict, but if you play the odds, you’ll be successful over time.

Alec Hogg: Magnus, you had a tough start. How are things now?

Magnus Heystek: Piet is right about luck playing a role in investments. I was hit hard early on when the tech bubble burst, and the Rand strengthened. But we’ve stuck to our offshore strategy, and it’s begun to outperform the local portfolio again. It’s a long game; we’ll see how it turns out. Markets are unpredictable; they can change instantly due to various factors like geopolitical events. I used to react daily to market shifts but learned to let my portfolio marinate. It includes Sean Peche’s Rand More Fund and Anthony Ginsburg’s megatrends. So, despite the rollercoaster, it’s been educational and fun competing with Piet. I might even catch up to him soon.

Read more: R1m Local v Offshore Challenge: Rivals agree SA stocks are now super-cheap

Piet Viljoen: Thank you. (Laughs)

Magnus Heystek: It’s all in the game.

Alec Hogg: This isn’t just a game for the investor—it’s real money. How should they feel about the current performance, Piet?

Piet Viljoen: Investors shouldn’t be too quick to judge the performance. Markets fluctuate. Some of the best-performing markets this year are surprising, like Nigeria, Greece, and Argentina, which nobody would have predicted. What’s essential is sensible portfolio construction, which can offer good long-term returns. Given our chosen assets, I believe the investor can sleep well at night.

Alec Hogg: The short-term losses shouldn’t be too worrying, given that it’s a five-year period.

Piet Viljoen: Exactly. I’d be more concerned if the investor had seen a 40-50% gain in just two years. Big gains often predict future losses. It’s impossible to forecast market movements accurately, but the investor should be comfortable given the current valuations in our portfolios.

Alec Hogg’s interview notes

Alec Hogg: Magnus, Pete suggests a 50-50 investment split between South African and offshore assets. Does that idea sit well with you?

Magnus Heystek: Surprisingly, it does. A 100% offshore investment portfolio isn’t for everyone due to the double volatility from currency and market fluctuations. A balanced 50-50 approach has historically shown a good risk-adjusted return for South Africans with local liabilities. This blended approach has led to about a 12-13% growth since its inception. Market predictions are highly uncertain; the only thing we know for sure is that we don’t know much.

Alec Hogg: There’s often a reluctance to keep all money in South Africa or invest it offshore. So, moderation seems wise. What’s next for you Piet?

Piet Viljoen: Investment is an infinite game with no fixed endpoint and ever-changing rules. The mainstream investment world markets it as a finite game, which is misleading. In an infinite game, the goal is to stay in the game and avoid ruin. So, my strategy would not change significantly at this point. The focus remains on balanced risk and long-term portfolio health.

Read more: How to take your finances off-the-grid & out of reach of the SA’s failing State – Magnus Heystek

Alec Hogg: Simon Sinek’s book “Infinite Game” shapes how we do business at BizNews and offers a unique investment perspective. Magnus, your thoughts?

Magnus Heystek: Years ago, I criticized a billboard for RMB’s small-cap fund that was up 100%, because the very next year, they lost 50%. This kind of marketing is irresponsible. To their detriment, investors follow this kind of publicity and often invest at the wrong time.

Piet Viljoen: Magnus, you’re correct. The investment industry often promotes short-term performance over long-term stability. And this can mislead the ordinary investor, who may jump from one fund to another based on short-term gains. We in the advisory space often find it challenging to steer clients away from this mindset.

Alec Hogg: Today’s discussion has been eye-opening. Magnus, you surprisingly don’t advocate taking all your money offshore, and Piet, you bring the concept of the ‘infinite game’ into investing. So, what’s next for you both?

Piet Viljoen: In South Africa, domestically oriented stocks, especially small caps, offer excellent value. We have less than average exposure to resource companies, but I think the real opportunities lie in well-managed small caps, which are ridiculously undervalued right now.

Magnus Heystek: My focus is on offshore investments. My portfolio is a blend, including value funds and tech stocks. But I’m particularly interested in Japan. It’s a market that’s often overlooked but has been performing well. I believe it’s an area where investors can see some good returns in the future.