File picture: Philimon Bulawayo
JOHANNESBURG - This week the discount to net asset value (NAV) of Astoria widened to almost 25%. Astoria is an investment company incorporated in Mauritius, investing only in offshore assets with the primary purpose to be a hedge against the rand. 

Last week I wrote about the Reinet investment trust that is also trading at a very wide discount, and by buying into the investment trust, you acquire the underlying assets at a discounted price.

Astoria was listed late in 2015, amid the Nenegate turmoil. Initially, there was huge interest and the share traded at a premium to the underlying value. As the rand started recovering the interest waned, and suddenly the investment community found all kinds of excuses to withdraw their investment. It ranged from criticism about their management fees to shares issued to the directors.

The share kept on dwindling downwards from its high of more than R18 to below R10. This week the Astoria NAV in rand terms touched an all-time high of R16.24, and together with the political turmoil, it reminded me of what an excellent rand hedge this company is. All their assets are 100percent offshore, and you can invest in the world’s best business through one JSE listed share, which will be difficult to replicate by buying directly into the underlying.

Astoria invests 60percent of their portfolio in listed shares, and well-known companies like Starbucks, Apple, Facebook, FedEx, MasterCard and Johnson & Johnson form part of the collection. They invest 20percent in private equity and 20percent in private funds. One of their recent successes was an investment in Echo Polska Properties in Poland, which listed very successfully, with its primary listing on the Luxembourg Stock Exchange. As I wrote last week, the most crucial aspect of an investment trust is the abilities of the persons deciding about the investments. Astoria has an impressive investment team, which is highly regarded in the investment community, a group of individuals with significant experience and successful track records in global equities and fund management.

The other very important quality of Astoria is its hedge against the rand. This week the reality of a downgrade to full junk status came closer as ever to South Africa.

The Medium-Term Budget fiasco reminds us of Margaret Thatcher’s famous quote: “The problem with socialism is that eventually, you run out of other people’s money (to spend).” The picture is bleak: Slow economic growth, coupled with excessive government spending and rising debt. South Africa has little leeway to increase taxes further, which leaves us with the only option to increase borrowing. No country growing at less than 1percent per annum can run at a deficit, and definitely not at around 4percent of GDP. In the absence of any credible plan to manage the situation, the rating agencies will not be satisfied and our chances of having the same credit rating in 12 months are unlikely.

We will probably be kicked out of the bond index, which will likely take our bond rates beyond 10% and our rand closer to R15 to the US dollar, or maybe weaker? Our only rescue will be if foreign investors stay interested in emerging markets for a longer time. Then we might see some temporary improvement in our currency.

For a long-term investor, wanting an offshore portfolio of assets, Astoria is a perfect vehicle. Especially if it is a trust or company that cannot take their funds directly offshore.

Also for individuals not wanting to take their money directly overseas, you can just buy the share on the JSE and hold it in your local trading account.

Be aware of the risks - not only can the rand appreciate due to external and unexpected factors, but the foreign markets can drop. Astoria should only be considered by investors wanting insurance against a continuously weakening rand, together with an investment in quality offshore assets. Astoria is trading at 1285cents.

Amelia Morgenrood is a portfolio Manager at PSG Konsult.