Invest across borders

OFFSHORE WRAPPERS: PROVIDING SOME SOLUTIONS AND NUANCES

Diversification approach is now more ingrained in investment decisions.

This is driven by an increased awareness that the SA investment universe and opportunities are relatively small (<1% of global market cap), that investors have a vast portion of their assets – from their fixed property to their pension – exposed to one country and that exposure to other geographic areas is prudent.

There was also a feeling that JSE investors were getting sufficient offshore exposure as SA companies increased their exposure.

But this has also changed, as investors realised they weren’t getting sufficient exposure to certain sectors, like the growing technology sector and the increasing prominence of companies like Facebook and Apple.

Another concern is Naspers’ dominance on the JSE, skewing local investment outcomes towards one share.

“The diversification approach has become more ingrained in investment decisions,” Brotchie says.

For investors wanting to diversify, the options are numerous. “There is a large range of investment choices, from share portfolios to cash.”

Investors need, first, to look at options. “From simply opening a bank account to offshore wrappers, there are many options and we have seen clients use them all,” Brotchie says. “About 15 years ago there was a preference for offshore trusts or just putting money into an offshore bank account.

“But offshore investment has evolved and we are seeing two primary offshore vehicles of choice – a Lisp (linked investment service provider, or platform for unit trust investment in various companies) or offshore life wrapper.

Offshore wrappers issued by SA life companies hold offshore assets on behalf of the investor, and there are several benefits, including the ability to nominate beneficiaries, no foreign inheritance tax and no tax administration for the investor.

“Wrappers have become the popular choice and there are a lot of advantages that investors would previously have enjoyed from a trust structure, like the ability to nominate beneficiaries, but at a relatively less expensive rate.

“What people look for in these wrappers is the financial planning advantages that they provide,” Brotchie says, as investing in a wrapper takes care of many financial planning issues.

People are looking for a structure for the long term that includes tax and estate planning, which wrappers do efficiently, he says.

The wrapper is the structure around the investments, but within those wrappers, investors have significant choice.

Wrappers have become the popular choice and there are a lot of advantages.

Andrew Brotchie MD of Glacier International