Limits curb offshore investments
● Easy routes to offshore markets have narrowed for some investors as two popular fund managers have reached their offshore asset ceiling and one large investment platform has implemented offshore limits.
But there are still many other ways to gain exposure to offshore markets and South Africans needing this exposure would do well to take advantage of the current relative strength of the rand to diversify into international markets, asset managers say.
Allan Gray has closed its popular Allan Gray-Orbis Global Fund of Funds and its Allan Gray-Orbis Global Equity Feeder Fund to new investments, while Foord closed its Global Equity Feeder Fund and its International Feeder Fund in 2016.
These funds allowed investors to get the benefits of exposure to foreign markets while investing in rands, but local unit trust management companies are limited by the South African Reserve Bank to investing no more than 35% of their retail assets under management in offshore markets.
In addition, Allan Gray is limiting investors using a living annuity or endowment policy on its investment platform to investing no more than 25% of new contributions in rand-denominated global, regional and worldwide funds.
Global funds invest across the world but not in local markets; regional funds invest in a specific region outside of local markets; and worldwide funds invest across local and global markets depending on where they see the best opportunities.
Existing investors in a living annuity or endowment policy on the Allan Gray platform may maintain their holdings in rand-denominated global, regional and worldwide funds but may not increase their exposure. This is because Allan Gray offers its living annuity and endowment policies through its life company, which has also reached its limit of 35% for offshore assets.
Allan Gray and Foord appear to be the only popular managers affected by a lack of offshore capacity so far, despite many managers and investors making full use of offshore investment allowances.
Shaun Duddy, a manager in Allan Gray’s product development team, says the main reason Allan Gray has reached its offshore limit is that the demand for its unit trusts with offshore exposure outweighs the demand for purely local investments.
Its Equity, Balanced and Stable funds can invest up to 25% offshore, and the rand-denominated Allan Gray-Orbis funds are 100% offshore. This is in contrast to some South African fund managers whose local interest-bearing funds constitute a larger share of their assets.
For investment platforms offering living annuities and endowments within large life assurance groups, the offshore limits are typically not reached because life companies also manage large amounts of money invested in guaranteed investments with underlying investments mostly in local assets, Duddy says.
Investors still have full access to other managers’ rand-denominated foreign funds when using the Allan Gray platform for a taxfree or discretionary unit trust investment, he says.
Rand-denominated foreign funds remain available on a limited basis for retirement fund, living annuity and endowment investments.
Investors can also consider investing offshore directly — Allan Gray has an offshore investment platform which offers offshore funds that are approved by the Financial Services Board as suitable for South Africans.
Company investments in Investec Asset Management’s money market funds have helped prevent it reaching its offshore capacity, says Daryll Welsh, the head of product at Investec’s investment platform, IMS.
Stanlib still has a lot of capacity, says its chief operating officer, Anthony Katakuzinos, because it has large amounts invested in money market and fixed-income funds.
Foord’s popular funds are its equity and multiasset funds. It has received strong inflows into its worldwide Flexible Fund and this was compounded by rand weakness after Nenegate in late 2015.
This fund reflects its best views on local versus offshore markets and currently has 70% invested offshore and only 30% invested locally.
The rand-denominated Foord Flexible Fund is still open for direct investments and discretionary investments on the Allan Gray platform.
Foord’s foreign currency Global Equity and International funds and the Global Equity and Global Balanced funds (among others) managed by Allan Gray’s sister offshore management company, Orbis, can still take your investment if you use your offshore investment allowance and convert your rands into the relevant foreign currency.
Demand for . . . offshore exposure outweighs demand for local investments Shaun Duddy Manager in Allan Gray’s product development team