Offshore is a bet against SA

NO GUARANTEE: NOT ALWAYS BETTER RETURNS Rather than viewing such a move in isolation, act in the context of your life’s objectives and your overall portfolio.

Living in SA often feels uncomfortable; the relentless reporting of our failures and differences creates a sense of impermanence. But moving money abroad, like all investing decisions, should be approached unemotionally. Consider a wide array of factors, including that you’re not assured of better returns.

Over five or ten years, local and international returns vary, but longer term, the two converge; in rand, the long-term real (after inflation) return of the JSE All Share’s been around 7% pa, and around 6.5% for international shares.

That may change in future, but there’s a strong argument it won’t. The rand’s long-term weakness against the US dollar is indicative of the inflation differential between the two countries.

But long-term, the share market’s also an inflation hedge. Higher local inflation eventually translates into higher nominal growth for our shares.

You should also match assets to liabilities. If you foresee a major expense in another currency then build an asset in it. If you hope to emigrate overseas, or plan a foreign education for your children, you won’t want the exchange rate sabotaging your future goal.

By transferring your money abroad at regular intervals, you can reduce your forex “timing risk”. Use a rules-based strategy – there’s no way to predict what the rand will do next.

But rarely do people take money offshore for a defined purpose, seeing it rather as “insurance”.

If you believe SA will become a “failed state”, move your discretionary financial assets to a safe-haven. But on average, this type of insurance usually costs more than it pays.

It’s good to spread your investments across securities, industries, asset classes, currencies and geographies.

As our share market’s quite narrow and the size of a few dominant counters presents concentration risk, it makes sense to include offshore equities in your portfolio.

But to reap the full benefit, you should rebalance regularly. Regarding your overall portfolio, rebalancing requires you to sell some investments that have done well and buy more of the laggards. Invariably, this requires you to buy rand after rand weakness and sell after a recovery. From that perspective, relocating your money offshore is then not optimal.

You don’t need to do that to achieve currency diversification. The JSE’s home to numerous secondary listings of international companies, and shares earning at least some revenue in foreign currencies. By owning the local market, you’re already partially hedged against rand weakness.

Also, your retirement fund probably makes full use of the 25% offshore allocation Sarb permits. Plenty multi-asset unit trust funds do the same.

If you want over 25% offshore exposure, a local low-cost international index tracker will give you quick, low-cost access to, not at your offshore allowance’s expense.

The normal rules apply: invest with the goal in mind; keep it simple; find a low-cost solution; don’t time the market, and optimise your outcome by occasionally rebalancing. Use official channels to manoeuvre freely.

Steven Nathan is CEO of 10X Investments.