Easier to go offshore
The number of options is increasing for investors wanting to move their money abroad, writes Johann Barnard
Local investors need not be concerned about a lack of options when considering offshore exposure. A steady relaxation of forex controls provides generous enough foreign capital allowances, complemented by a growing number of funds and platforms offering direct exposure to global markets.
Investors have little excuse not to consider broader diversification of their portfolios. They have long been able to explore offshore options through rand-denominated collective investment schemes, but there has been considerable movement of late from local institutions offering direct ownership of offshore assets.
In the past few months Sasfin has launched a global equity fund domiciled in Luxembourg and Purple Group has expanded its online share trading platforms to include direct ownership of New York Stock Exchange-listed stocks and exchange traded funds (ETFs).
Sygnia has bought out Deutsche Bank’s globally focused db X-tracker ETFs and Satrix listed three new ETFs of a comparable profile to Sygnia’s renamed Itrix funds.
For Purple Group CEO Charles Savage, the introduction of direct ownership in US shares is a natural progression of the company’s mission to make share ownership simple, affordable and even fun.
Building on the success of its EasyEquities online trading platform, he says the interest has been driven less by lack of confidence in local shares than by a desire from a younger crop of investors to get access to global brands they love.
“Who doesn’t want to own Amazon, Apple, Alibaba or Tesla — names that define this generation? They have grown up with these brands and their affinity for them is far greater than any economic or political fear they might have for the SA environment,” he says.
Prior to going live, Purple Group undertook a fairly lengthy process of trying to understand their users’ preferences and motivations when looking at global stocks. Savage says there is no singular reason for users’ choices: some, for instance, like Tesla because of Elon Musk’s SA heritage, while others have a fundamental appreciation of the disruption that the car and energy company promises to deliver.
The company is banking on leveraging the success of its online platform to attract investors wanting to expand their horizons.
“The US was the most obvious first step for us because it offers the most engaging brands, and the broadest ETF universe. What is clear from the engagement that we’ve had is that the biggest barrier to entry for users is actually moving money offshore.”
Savage says the account opening process for an offshore account won’t be too onerous. The challenge for most SA investors, he say, is going to be the cost involved. This is not only in transaction fees, but also the minimum amount of money that can be moved offshore and minimum transaction values that are allowed.
“This is not a problem we can’t solve over time, but we’re looking to see how we can make that easier for our customers,” he says. “Unfortunately, for the small investor who only has R1,000 to move offshore, it’s going to be difficult and expensive for now.”
Apart from the direct ownership offered by Purple Group, investors have no shortage of foreign, or rand-denominated, collective investment scheme funds to choose from. These funds offer a wide variety and mixture of asset classes.
The growing appetite of SA investors to diversify away from locally listed shares in part motivated Satrix to launch its MSCI World, MSCI Emerging Market and S&P 500 ETFs.
These rand-denominated funds complement Satrix’s offshore, hard-currency funds.
“For quite a while we’ve had foreign index trackers, so these ETFs are a natural addition to our global offering,” says Satrix CFO Rick Martin. “We’ve seen big demand, and it’s an obvious asset class that one would want to add to a portfolio.”
Candice Paine, a financial consultant who has worked with Satrix, says one of the benefits is that the funds should encourage a more regular exposure to offshore assets rather than panic-driven buying at times of local upheaval.
“Whenever the rand blows out or there’s some political conundrum, you see retail investors run offshore. Now you don’t need to do so at a point of exception, but build that into your portfolio over time with smaller amounts of money if necessary,” she says.
Martin says the funds enable investors to continue to grow their offshore exposure, should they have reached their foreign capital allowance.
Charles Savage … aim is to simplify share ownership Picture: JAMES OATWAY