A world of in­vest­ments on your doorstep

If you want to in­vest off­shore, you don’t have to find an off­shore man­ager and con­vert your rands into a for­eign cur­rency; a lo­cal man­ager can de­liver the re­turns you need. re­ports

Weekend Argus (Saturday Edition) - - FRONT PAGE -

Do you need an off­shore man­ager to man­age your off­shore in­vest­ments?

Many South Africans are con­sid­er­ing in­vest­ing off­shore, or top­ping up their off­shore in­vest­ments, mainly be­cause the po­lit­i­cal risks to the econ­omy, fi­nan­cial mar­kets and the rand are high. Although these may not be the best rea­sons for in­vest­ing off­shore (see be­low), many in­vestors have too lit­tle ex­po­sure to off­shore mar­kets and need to di­ver­sify their port­fo­lios.

If you are con­tem­plat­ing in­vest­ing off­shore, you may be won­der­ing whether you need to find a for­eign man­ager, or whether a fa­mil­iar home-grown one will do.

When it comes to per­for­mance, South African fund man­agers do well rel­a­tive to their for­eign com­peti­tors, although there are sound ar­gu­ments for us­ing an off­shore man­ager, such as lower costs and more ex­pe­ri­ence (see “The ex­tra ef­fort of in­vest­ing off­shore di­rectly can pay off for you” on

If you are just be­gin­ning to ven­ture into off­shore mar­kets, a rand-de­nom­i­nated global eq­uity or global multi-as­set fund is a good place to start. You can in­vest in these funds with­out con­vert­ing your rands into a for­eign cur­rency, ac­cess­ing your off­shore in­vest­ment al­lowance (up to R10 mil­lion each year) and ob­tain­ing tax clear­ance.

You can also take com­fort from the fact that lo­cal man­agers are prov­ing their worth rel­a­tive to their for­eign coun­ter­parts. For ex­am­ple, the top five rand- de­nom­i­nated funds in the for­eign eq­uity gen­eral sub-cat­e­gory over the past 10 years have de­liv­ered re­turns pretty much in line with the re­turns (in rands) pro­duced by off­shore global eq­uity funds (be­tween about 10 and 12 per­cent a year).

Off­shore funds are reg­is­tered in a coun­try out­side South Africa, and to in­vest in them you must use your off­shore al­lowance and con­vert your rands into a for­eign cur­rency. Some are man­aged by lo­cal fund man­agers, while oth­ers are man­aged by man­agers based abroad.

Although you are free to in­vest in any fund any­where in the world, off­shore funds that are reg­is­tered with the Fi­nan­cial Ser­vices Board (FSB) are re­garded as suit­able for South Africans, be­cause they are domi­ciled in coun­tries with reg­u­la­tions sim­i­lar to ours and have a rep­re­sen­ta­tive in South Africa whom you can con­tact.

Over the past 10 years, the av­er­age an­nual re­turn (9.25 per­cent) of global eq­uity funds based in South Africa was slightly above the av­er­age an­nual re­turn of off­shore global eq­uity funds (9.02 per­cent).

In the PlexCrown sur­vey of off­shore as­set man­agers that have FSB-reg­is­tered funds de­nom­i­nated in a for­eign cur­rency, the lead­ing man­ager at the end of Septem­ber was Lon­don-based ACPI, which has four fixed-in­come funds and a global multi-as­set fund domi­ciled in Jer­sey in the Chan­nel Is­lands.

How­ever, the next four places in the rank­ings were filled by lo­cal man­agers with off­shore funds: Mar­riott (sec­ond place), Ned­group In­vest­ments (third), Oa­sis (fourth) and In­vestec (fifth).

A look at the re­turns in United States dol­lars (ac­cord­ing to Pro­fileData) of FSB-reg­is­tered off­shore funds shows that lo­cal man­ager Fo­ord’s In­ter­na­tional Trust Fund was the top- per­form­ing global as­set-al­lo­ca­tion flex­i­ble fund over 10 years, with an av­er­age an­nual re­turn of 11.48 per­cent.

Global as­set-al­lo­ca­tion flex­i­ble funds have no re­stric­tions on how much they can al­lo­cate to the dif­fer­ent as­set classes of eq­ui­ties, bonds, cash and listed prop­erty.

Look­ing be­yond the small pool of FSB-reg­is­tered off­shore funds to all off­shore funds, Daryll Welsh, the head of prod­uct at In­vestec In­vest­ment Man­age­ment Ser­vices, says for­eign funds in the more pop­u­lar sec­tors (global multi-as­set and global eq­uity) run by South African man­agers have fared well over the past year.

He says South African off­shore funds, such as those man­aged by Fo­ord, In­vestec, Coro­na­tion and Ned­group, are in the top half of in­ter­na­tional rat­ings agency Morn­ingstar’s per­for­mance ta­ble over one year in the cat­e­gories for global and Euro­pean funds. These funds in­vest in the largest shares on ex­changes around the world or in Europe, as well as in two multi-as­set sub-cat­e­gories, for funds with a high or mod­er­ate ex­po­sure to eq­ui­ties.

Welsh says some of these sec­tors have a large num­ber of funds, so it is no mean achieve­ment for a fund man­aged from South Africa to achieve above-av­er­age per­for­mance.

The com­pe­ti­tion for your rand-de­nom­i­nated in­vest­ments in off­shore mar­kets is in­creas­ing.

Over the past two years, al­most 40 rand- de­nom­i­nated funds that in­vest in for­eign mar­kets have been launched and al­most 30 rand-de­nom­i­nated world­wide funds have been launched. World­wide funds in­vest in for­eign and lo­cal fi­nan­cial mar­kets in line with the man­agers’ ex­pec­ta­tions of how these mar­kets will per­form.

OFF­SHORE EX­PER­TISE

Of the FSB- reg­is­tered off­shore global eq­uity funds, the lead­ing fund over the 10 years to the end of Septem­ber was the Or­bis Global Eq­uity Fund, with an an­nual av­er­age re­turn of 12.92 per­cent.

The top rand-de­nom­i­nated global eq­uity fund over the same pe­riod was the Al­lan Gray-Or­bis Global Eq­uity Feeder Fund, which in­vests in the Or­bis Global Eq­uity Fund. Or­bis is a sis­ter com­pany of Al­lan Gray and its funds are domi­ciled in Ber­muda and man­aged by a team in Lon­don and else­where in the world.

Many lo­cal man­agers have set up their own off­shore funds and of­fer South Africans the op­tion of in­vest­ing in these in ei­ther a for­eign cur­rency or in rands by way of what is known as a feeder fund.

Some South African man­agers have teams that ac­quaint them­selves with the global mar­kets from within this coun­try, while oth­ers use teams in other parts of the world, typ­i­cally Lon­don.

Other man­agers have part­ner­ships with man­agers based in other coun­tries, for ex­am­ple:

• Pru­den­tial Port­fo­lio Man­agers uses M&G In­vest­ments, the United King­dom and Euro­pean man­ager in the South African man­ager’s par­ent group, Pru­den­tial plc.

• Stan­lib uses three off­shore man­agers, Fidelity World­wide In­vest­ments, Columbia Thread­nee­dle In­vest­ments and Brand­wine Global In­vest­ments, to man­age its for­eign and off­shore cash, eq­uity and as­set al­lo­ca­tion and bond port­fo­lios re­spec­tively.

• Last year, Absa Ac­tive As­set Man­age­ment part­nered with UK-based in­vest­ment heavy­weight Schroders In­ter­na­tional to man­age its Global Core Eq­uity Fund and Global Re­cov­ery Fund. The global eq­uity fund is also avail­able as a rand-de­nom­i­nated feeder fund.

• South African man­ager Ned­group In­vest­ments won the Rag­ing Bull Award for the top off­shore man­ager of 2015. Its off­shore funds and rand-de­nom­i­nated feeder funds are run by off­shore man­agers that it se­lects. For ex­am­ple, its for­eign-cur­rency-de­nom­i­nated Global Flex­i­ble Fund is man­aged by First Pa­cific Ad­vi­sors in the US.

If you in­vest in a feeder fund that in­vests in an off­shore fund, you can com­pare the per­for­mance of the un­der­ly­ing off­shore fund to that of other FSB-reg­is­tered off­shore funds.

GROW­ING PAS­SIVE MAR­KET

Af­ter many years of a limited range of low-cost rand-de­nom­i­nated funds that track global in­dices (pas­sively man­aged in­dex- track­ing funds), there will soon be two ad­di­tions.

Deutsche Bank has a range of five ex­change traded funds (ETFs): three track broad global in­dices and two track lead­ing in­dices in the US and Ja­pan re­spec­tively. Old Mu­tual and Sa­trix each has a fund that tracks the broad global mar­ket.

The db x-tracker MSCI USA In­dex ETF was the top-per­form­ing rand- de­nom­i­nated col­lec­tive scheme over the 10 years to the end of Septem­ber, with an an­nual re­turn of 27.85 per­cent.

Re­cently, Core­shares an­nounced that it will list an ETF that tracks a ma­jor global in­dex, the S&P500, on the JSE in early Novem­ber. The S&P500 tracks the 500 largest shares (mea­sured by the value of the shares listed) on eq­uity mar­kets around the world. The cost of the ETF will be 0.45 per­cent a year.

Core­shares will also launch a global prop­erty ETF that will track the S&P Global Prop­erty 40 In­dex, which tracks the 40 largest listed prop­erty stocks glob­ally.

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