GREAT OPPORTUNITIES BUT BE CAREFUL
There is some comfort for SA investors wishing to invest offshore, writes Johann
Barnard , in the knowledge that the routes to achieving that goal have grown in tandem with the decline in forex restrictions, With the annual foreign investment allowance set at R10m, the scope for taking money abroad to invest is considerable.
It is obviously wise to speak to a financial adviser, and a tax consultant, to determine the route that best suits your circumstances. But once that hurdle has been cleared, local investors are spoiled for choice.
Many rand-denominated unit trusts provide exposure to offshore assets.
Similarly, investors could elect to invest via exchange traded funds (ETFs) that offer exposure to offshore index funds or trackers.
BayHill Capital, part of the Peregrine Group, offers a variation on vanilla ETFs that track global stocks, markets or indexes. Company MD Geoff Blount explains that its actively managed ETF portfolios are essentially baskets of offshore ETFs structured to meet investors’ needs and risk profile.
BayHill manages this basket, adjusting the holdings to ensure the performance of the portfolio according to the client’s mandate.
“When buying ETFs for our clients, we don’t try to pick individual stocks, but rather look at the big-picture themes and try to be smart and intelligent about how we allocate that capital,” he says.
“People want to know who is managing their money. They want to know that if there is a problem they can actually phone someone. Hence, we have noticed an increased appetite to use SA providers for managing offshore portfolios because they can identify with the firm managing the money, rather than an anonymous call centre overseas.”
The concept of baskets or bundles of ETFs, packaged for convenience and spreading of risk, is one that seems to be growing in popularity. Purple Group has introduced this offering on its locally focused EasyEquities online platform aimed at retail investors, and will be launching a US-focused offering in March this year.
Purple Group CEO Charles Savage says the new offering, which would require opening an offshore investment account via the online platform, is in response to demand for direct exposure to the US market.
“Access for South Africans to own US shares is difficult and expensive,” he says. “We’ve been able to leverage off our platform and partner leading US fintech companies to deliver a similar cost profile and identical user experience to the one we operate here for JSE shares.
“Where previously access like this has been available only to the wealthy, now everyone can own some of the dominant global brands they love and consume every day.”
The decision-making has been simplified by initially offering only primary index stocks, including the S&P 100, Dow 30 and Nasdaq 100, and a sampling of up to 100 ETFs.
BayHill’s Blount says greater simplicity in accessing offshore markets does not mean investors should blindly jump into the market. Making the right offshore investment decision is not only about selecting assets that will deliver long-term returns, but that are also selected for tax and estate planning efficiencies.
For instance, direct shareholding, ETFs and unit trusts trigger capital gains tax if any of these assets are sold. A wrapper product such as an endowment does not.
“Certain jurisdictions overseas may also charge estate duty on your investments in those jurisdictions. But if you have your investment in an endowment wrapper, this is simply part of your SA estate and not subject to those other offshore taxes,” he says.
The trick for local investors is to be dispassionate and to keep the longer-term vision firmly in focus.
Charles Savage … Owning brands
Geoff Blount … Big-picture themes