SHOULD YOU IN­VEST OFF­SHORE?

Finweek English Edition - - FRONT PAGE - BY JUSTINE OLIVIER ed­i­to­rial@fin­week.co.za

With the rand re­cently fall­ing to a 14-year low against t he dol­lar, many South African con­sumers have been ask­ing if they should be tak­ing money off­shore.

Shaun Ruiters, head of strat­egy and client so­lu­tions at San­lam In­vest­ments, be­lieves off­shore ex­po­sure is nec­es­sary for a diver­si­fied port­fo­lio.

“As a South African res­i­dent, the value of your home, your in­come and your sav­ings is likely to be heav­ily ex­posed to what hap­pens in the South African econ­omy and mar­kets. By stick­ing to rand-based lo­cal in­vest­ments only, you miss out on the di­ver­sity of op­por­tu­ni­ties across the rest of the globe.”

As South Africa rep­re­sents less than 1% of the world econ­omy, re­strict­ing your­self to do­mes­tic as­sets only means you are fore­go­ing ex­ten­sive in­vest­ment op­por­tu­ni­ties avail­able in global mar­kets. “In­ter­na­tional in­vest­ing will give you ac­cess to re­gions and in­dus­tries that are not well-rep­re­sented lo­cally [e.g. IT and elec­tron­ics],” ac­cord­ing to Coro­na­tion Fund Man­agers. “Re­search on op­ti­mal port­fo­lios sug­gests an off­shore al­lo­ca­tion of 20% to 30% for long-term in­vestors re­quir­ing a re­turn of inf la­tion plus 4% to 5%.”

Aside from al­low­ing ac­cess to a much greater op­por­tu­nity set which, in turn, should al­low you to im­prove re­turns, in­vest­ing off­shore al­lows you to di­ver­sify cur­rency ex­po­sure, which can help pro­tect your lo­cal pur­chas­ing power in the long term as many costs are “im­ported”, and there­fore ex­posed to a weak­en­ing of the rand rel­a­tive to other global cur­ren­cies, ex­plains Tam­ryn Lamb, head of Or­bis Client Ser­vic­ing in South Africa (Or­bis is Allan Gray’s off­shore in­vest­ment part­ner).

South African mar­kets of­fer lim­ited i nvest­ment op­por­tu­ni­ties, ex­plains Vaughan Henkel, in­vest­ment strate­gist at Stan­lib.

“We have high eq­uity con­cen­tra­tion in South Africa. Five stocks make up 40% of the JSE All Share In­dex, whereas five stocks only make up 11% of S& P 500, which gives you sig­nif­i­cantly lower risk. There are 2 500 in­vestable stocks glob­ally ver­sus ef­fec­tively 100 stocks in South Africa.”

The most ap­pro­pri­ate al­lo­ca­tion of your port­fo­lio is to have 50% in off­shore as­sets, Henkel be­lieves. “In­vest­ing lo­cally has its ad­van­tages, as ev­i­denced by the past 15 years where the South African eq­uity mar­ket has been an ex­cel­lent eq­uity des­ti­na­tion. How­ever, the fac­tors that made our re­turns so strong in the past 15 years have dis­si­pated and we ex­pect weaker re­turns go­ing for­ward.”

Ruiters sug­gests that there are two ways to go global:

Take your money off­shore as part of your an­nual R10m off­shore al­lowance. ( You may trans­fer R1m over­seas ev­ery year with­out ask­ing Sars for a ta x clear­ance cer­tifi­cate). “You would need an off­shore bank ac­count. Off­shore-based funds have a min­i­mum re­quire­ment in­vest­ment amount of at least R100 000.”

In­vest in a lo­cally domi­ciled global fund. “You can in­vest the money from your South African bank ac­count and when you dis­in­vest, the money re­turns to your South African bank ac­count. The fund man­ager will in­vest your money in off­shore as­sets, though. With this type of fund you can in­vest amounts as small as R5 000.”

How­ever, Graham Lovely, fi­nan­cial ad­viser at PSG Wealth, says that be­fore de­cid­ing to in­vest abroad, you should con­tem­plate how best to ex­ter­nalise funds to­gether with what the most ap­pro­pri­ate in­vest­ment ve­hi­cle or struc­ture might be, and what tax, ex­change con­trol and es­tate duty im­pli­ca­tions may arise.

While there are many fac­tors that need be con­sid­ered when in­vest­ing off­shore, it may be one of the best in­vest­ment de­ci­sions that you can make.

“By tak i ng ad­van­tage of global i nvest­ment op­por­tu­ni­ties, you can share in the growth of the world’s most prof­itable in­dus­tries and also ben­e­fit f rom hold­ing i nvest­ments i n other cur­ren­cies,” Lovely says.

“BY STICK­ING TO RAND-BASED LO­CAL IN­VEST­MENTS ONLY, YOU MISS OUT ON THE DI­VER­SITY OF OP­POR­TU­NI­TIES ACROSS THE REST OF THE GLOBE.”

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