The volatility of the Rand over the last 25 years has made most South Africans aware of the risk of holding Rand denominated assets

The volatility of the Rand over the most part of the last decade has been of particular interest, with the Rand collapsing at the end of 2001 and then systematically recovering. These exchange rate movements have not been in line with the inflation differentials of SA and its major trading partners, as should theoretically be the case.  The movements in the Rand are determined by a number of varying factors, some of which are susceptible to exogenous factors, while others are not, and as such, render the Rand exchange rate vulnerable to a greater degree of volatility. Empirical research indicates that Rand / US Dollar movements affect stocks listed on the Johannesburg Stock Exchange.

Rand / Dollar vs JSE Top 40

Examining Rand exposure

Not all sectors of the JSE respond to exchange rate fluctuations in the same way. Individual companies are clearly affected in line with the market’s expectations on how real exchange rate changes would impact on company operating profits and dividend flows. Zshares RandHedge and Zshares RandPlay are designed to perform best whenever the Rand depreciates or appreciates respectively, while retaining exposure to the South African equity market. The companies in each portfolio are selected in terms of a robust method that determines the optimal portfolios of stocks that an investor should hold, depending on his or her view of future currency movements. The model examines how the individual operating characteristics of listed companies would determine the way in which their profitability, and hence their share prices, would be affected by exchange rate changes.

The mechanics in terms of how the Investec RandPlay and RandHedge indices are calculated is outlined in Appendix A of the portfolio supplemental documents. Click here to view this document.