Investing Offshore

Making the decision to invest offshore can be overwhelming for South African investors. This is due to the sheer size of the investment universe with all of its various products, asset classes and service providers, coupled with the associated risks.

The first step is to ensure that the motivation for offshore investing is not merely because of a negative view on the local currency. This incorrectly predicated investment strategy is unlikely to provide a sustainably satisfactory outcome. Nevertheless, currency risk is a factor that needs to be carefully considered. South Africans tend to become fearful when the rand blows out and choose this as the time to send their money offshore. However, many investors have been burnt this way and it is best to invest offshore when the rand is strong or stable.

When building a diversified portfolio, investors should remember that the selection of an asset class depends on both value and conviction. This principle is unchanged when investing locally or offshore.

A diversified portfolio should be considered in aggregate and not on a geographical basis. The selection of assets in a portfolio is also a function of an investor’s risk appetite and particular requirements. However, in the current low interest environment with poor medium-term prospects for bonds, equities remain the asset class of choice.

The equity markets have had a good run this year with the S&P up 19% year to date at the time of writing. However, the recent turmoil in emerging markets has seen certain markets posting double digit losses in the past few months, even more when one takes the related currency depreciation into account. This creates opportunities in certain markets. Despite the sharp price declines, we believe that it is better to buy a good company at a fair price than a bad company at a bargain.
When it comes to accessing offshore investments, investors should not hesitate to consider the offshore funds of South African fund managers that they have come to know and trust. There are two main ways of using local fund managers to invest offshore, depending on the size of the investment. For smaller amounts, South African investors might do well to access offshore markets via a local feeder fund or via a global asset allocation fund. Any money invested in this manner does not form part of an individual’s offshore allowance. For larger sums, investors can obtain a SARS tax clearance certificate and invest directly in the offshore fund, in foreign currency.

Carolyn Levin
September 2013