Having Your Cake and Eating it Too

5 February 2019 | Martin Strauss
 


Offshore or local? Active or passive? Traditional human investing or quants models? The sheer number of ways to invest can make it difficult for even the most sophisticated investor to decide where to put their money.

In this article, we unpack our specific viewpoints on some of the most popular debates of the day and take a look at offshore “smart managed” multi-asset ETF portfolios, a solution which we believe is primed to help investors navigate the current climate of low returns and high fund manager costs.

Offshore versus local investing

This question has been raised in a few of our previous opinion pieces. The fact of the matter is that even though the JSE has been a great investment destination over the last couple of decades - even for the dollar-based investor - it makes up only a small portion of the global investable universe. It is difficult to gain exposure in attractive sectors and industries like cloud computing and cyber security on the local bourse.  Investors must seek new strategies that are more likely to generate growth over their respective investment horizons.

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Restricting yourself to domestic assets means foregoing extensive investment opportunities available in global markets. International investing will give you access to regions and industries that are not well-represented locally (e.g. IT and electronics). Research on optimal portfolios suggests an offshore allocation of 20% to 30% for long-term investors requiring a return of inflation plus 4% to 5%.

Geographical diversification, economic emigration and the fact that one makes offshore investments in safe-haven currencies like the US dollar (which can be considered an investment in its own right) still make investing in these countries a must for any investment portfolio.

Active versus passive investing

Vanguard founder Jack Bogle started the debate about active versus passive investing when he created the first index fund in 1975, and it has been dominating the realm of investment circles ever since. For the moment it appears that those in the “passive corner” have the upper hand, considering that active managers have been struggling over the last couple of years to deliver the alpha (market outperformance) that would justify their management and performance fees. Above-average volatility due to an uncertain geopolitical climate has wiped out alpha (and quite likely generated negative alpha), leading investors to ask themselves whether the additional fees and heightened stress associated with active picks are worth it.

The question is whether it could be possible to combine active and passive strategies to try to get the best of both worlds? In other words, stay well diversified but still manage to beat the broader market index? We think you can.

Traditional investing versus quantitative investing

Investors and asset managers are human, and the market is still dominated by sentiment and emotion. Cognitive biases will always be present, and this is dangerous when we need to stay as objective as possible in analysing our investment strategies. Quantitative strategies (smart managed) work because they are based on rules and discipline. If the model (the rules) is right, the discipline keeps the strategy working with lightning-speed computers to exploit inefficiencies in the markets based on quantitative data. The models themselves can be based on as little as a few ratios like P/E, debt to equity and earnings growth, or use thousands of inputs working together at the same time. This is known as “rules-based” investing or Smart Beta.

Successful strategies can pick up on trends in their early stages as the computers constantly run scenarios to locate inefficiencies before others do. The models are capable of analysing a large group of investments simultaneously, where the traditional analyst may be looking at only a few at a time. 

If we could take emotion out of the equation and use a quantitative model to identify suitable ETFs for our portfolios, we could expect to perform better than others over specific time periods. Would that not be enticing, and definitely worth another look?

An all-inclusive solution - Offshore quantitative-based ETFs

It is important to note that we believe the above strategies are favourable in the current economic climate. Neither local versus offshore, active or passive, human-based versus quants investment strategies will have the upper-hand indefinitely. Underlying asset classes, sectors and market sentiments are, and will always be, cyclical. Different investment strategies perform differently over time.

However, for the purposes of our current assessment of market conditions, Sharenet has developed offshore quantitative-based ETF models which combine the best of our three scenarios discussed above. These ETF solutions have proven to deliver good performance at very acceptable levels of risk. Investors can expatriate funds into USD, EUR or GBP and these ETFs can be purchased directly on their relative exchanges. The benefits include:

  • Funds can be expatriated using one’s travel or offshore allowances. These structures are also available via asset swap capacity and can be included in tax efficient or wrapped structures through approved life assurers.
  • Funds remain liquid and can be accessed within a short space of time.
  • Different risk classes of ETF portfolios, so the product caters for the risk-averse investor and those who are willing to take more risk in pursuit of higher returns.
  • Competitive fee structures as opposed to unit trusts and active investment options.

GLOBAL ETF PORTFOLIO RANGE & FACT SHEETS

Start with what it is you want to achieve (e.g. income only, income and growth, balanced growth or growth only), then click on the below Portfolio to view the detail of the relevant portfolio.

If you’ve been exploring your options for moving your wealth abroad, complete the below form to get in touch with one of our trusted wealth advisors to discuss the various offshore ETF portfolios on offer.

 

martin

Martin Strauss

Martin joined Sharenet Wealth in June 2018 to lead our Investment Strategy Group. Prior to this, Martin was a Portfolio Manager at Standard Bank Stock Broking heading up offshore investment strategy. He was previously Head of Trading at PSG Wealth and has more than 7 years experience in the investment management industry. Martin holds a B.Com Honours degree in Accounting, is a qualified Chartered Financial Analyst, holds the CFP designation and is a member of the Investment Analyst Society of SA.


  • Funds can be expatriated using one’s travel or offshore allowances. These structures are also available via asset swap capacity and can be included in tax efficient or wrapped structures through approved life assurers.
  • Funds remain liquid and can be accessed within a short space of time.
  • Different risk classes of ETF portfolios, so the product caters for the risk-averse investor and those who are willing to take more risk in pursuit of higher returns.
  • Competitive fee structures as opposed to unit trusts and active investment options.

Disclaimer:
The information contained in this article is for informational purposes only and must not be regarded as a prospectus for any security, financial product or transaction. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial issue. Investors should consider this research/article as only a single factor in making their investment decision. We recommend you consult a financial planner/advisor to take into account your particular investment objectives, financial situation and individual needs. The views and opinions (where expressed) in this article are those of the author and do not necessarily reflect the official policy or position of Sharenet.

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