Seek advice on how much you should invest offshore

All investors should be exposed to offshore assets. However, your personal circumstances will determine the percentage of your portfolio that should be invested in foreign markets.

Increasing your offshore investments significantly in a blind panic about the state of the economy and the weakness of the rand is risky, a leading asset manager says.

Many investors are not only worried about further rand weakness, but also the poor state of the local economy and the potential for ratings agencies to downgrade South African government bonds to junk status.

These factors, as well as the removal of Nhlanhla Nene as finance minister, have seen consumer and business confidence plunge, and many investors are asking whether they should invest more offshore, Peter Brooke, the head of Old Mutual Investment Group’s MacroSolutions boutique, says.

The sage advice is that every investor should be diversified into offshore markets, but the percentage of your assets that you should invest offshore depends on where you are in your life, where you plan to realise your investments, your current exposure to offshore and local markets, and the return you require on your investments, Brooke says. Ultimately, the question is “how much is enough?”.

A well- qualified, independent financial adviser should help you to determine your optimum level of offshore assets, Brooke says.

Because the amount you need depends on your circumstances, there is no standard percentage of your portfolio you should invest offshore, but generally, the higher your required return and the more risk you are prepared to take, the greater your offshore exposure should be.

If you invest in a multi-asset, or balanced, fund with an expected real ( after- inflation) return of between four and five percent, about 35 percent of that portfolio should be exposed to offshore markets, he says.

Many investors are taking a lot of money offshore, as if they were going to emigrate. This is risky, because your assets (your investments) are not aligned with your liabilities (the spending your investments will have to fund, such as an income in retirement), Brooke says.

If you invest in a multi-asset fund that is an underlying investment in a retirement fund or a retirement annuity fund, the fund’s offshore exposure is limited to 25 percent of the portfolio in terms of the prudential investment guidelines contained in regulation 28 of the Pension Funds Act.

Brooke says many shares on the JSE earn a sizeable portion of their earnings or profits from offshore markets – they are what are known as rand-hedge shares. As a result, most people in a South African multi-asset fund that complies with regulation 28 have sufficient offshore exposure despite the 25-percent limit on offshore assets.

If you have children overseas, spend a lot of time overseas, or have significant unlisted assets in South Africa, such as property and agricultural land, then it may make sense to increase your offshore exposure, but Brooke advises you to seek professional financial advice before deciding on your offshore allocation.