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Hedging the rand
Valued Contributor
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Hedging the rand

rand.jpg

 

With the Rand getting all hot and bothered again after a protracted run stronger I thought a quick look at how we can hedge against a weaker currency.

 

  • Offshore but locally listed stocks
    • Works well but a lot of moving parts that may offset or enhance the share price

 

  • Local USD earning stocks
    • Again, works well but many moving parts so not linear between price and currency

 

  • Webtrader offshore account
    • Money in a Webtrader account is USD so this is purest form of rand hedge

 

  • Locally listed offshore ETFs & ETNs
    • We have a wide range here with the CoreShares and DB x-trackers. Here again the underlying basket may

 

  • NEWUSD
    • ETN from ABSA, simple and tracks currency 1:1 (Also GBP and Euro)

 

  • Commodity ETFs/ETNs
    • Two moving parts and the commodity USD price may move against you

 

  • Currency futures
    • Traded in a futures account, nice and easy and geared modestly.

 

The easiest and simplest is a position in NEWUSD while the purest would be an offshore webtrader account with currency futures offering some gearing.

 

Perhaps most importantly, never panic.

Simon

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9 Comments
Contributor

And currency futures.

Valued Contributor

@leoridge

ah yes, added them.

thanks

Occasional Contributor

It is just that the Rand is so volatile!! It is hard to trade it at a profit with currency features. I am scared of it.

New Contributor

Been buying Atlantic Leaf Properties today which owns UK Properties. At R15.70 and on about 10% yield would think downside fairly limited and good hedge if things go pear shaped with rand.

Senior Member

Lots of rumours re cabinet reshuffling. Thanks for this, might consider the direct currency route.

Senior Member

What about putting Rand into an offshore unit trust that is domiciled offshore and is denominated in USD?

There are others, but for instance Coronation Managed Global which is based in Ireland and the units are held in USD.

Costs are 1.8% pa.

Valued Contributor

@DocG

Yip that works, question is if they will out perform a locally listed but offshore ETF? Check fees (1.8% as you said, any performace fees?), benchmark, asset allocation and past performance. My preference is always ETFs and one could buy a NYSE ETF, VOO being the SP500 tracker but there over a thousand others.

 

Senior Member

Thanks for the answer, Simon. What would be the most cost effective way in buying such an ETF (lowest costs)? Webtrader seems pricey, (or perhaps I just don't understand all the jargon in their ad).

Valued Contributor

Webtrader is US$20 min per trade and 0.2% of portfolio value per year as admin fee.

 

You could of course just buy CSP500 in a JSE (or veen tax-free) account at normal brokerage rates.