Why it makes sense to invest elsewhere

● The strength of the rand relative to other currencies makes now a good time to enter offshore markets if you need offshore exposure, say Paul Cluer, chief investment officer at Foord, and Shaun Duddy, a manager at Allan Gray.

Cluer says the local equity market universe is increasingly dominated by large rand-hedge shares – the shares of companies that have offshore earnings – and not companies that make the most of their money in South Africa.

He says in Foord’s view growth markets are offshore, although it is not good to close your eyes to local opportunities.

Your level of offshore exposure should be made in line with your investment time horizon and the currency in which your future liabilities or expenses will be.

He says you are exposed to higher volatility when you invest in foreign markets because the rand, although depreciating against a basket of overseas currencies over time, fluctuates from being oversold to being overbought.

Your investment time horizon for an offshore investment should be at least three years and ideally more than five years.

With increasing longevity, most people saving for retirement or in retirement should have this investment time horizon, but those who have not saved enough and are drawing down too aggressively will have to be careful of the volatility an offshore investment introduces, he says.

Investors who use feeder funds (rand-denominated funds that feed into a single foreign currency offshore fund) are incurring additional costs and will be taxed on the gains they make on the depreciation of the rand.

Investing directly into the underlying offshore funds means when you cash in your investment you will be paid out in a foreign currency and only pay on the taxable gain made in the foreign currency.