Recently, there has been a clamouring from prominent politicians to expropriate land without compensation. This has made many South Africans uncomfortable, specifically with reference to their local investments. Aside from local opinion, and regardless of the political motivations and rhetoric surrounding this highly emotive topic, there is one important constant to consider here: international optics.
Figure 1. Julius Malema, leader of the EFF, has been leading the charge for the expropriation of property without compensation. Picture from www.timeslive.co.za
While South African citizens are grappling with the issues surrounding the parliamentary vote to expropriate land, international investors are holding back funds, which would otherwise have found their way into South African investments. This can have knock on effects on our local market, leaving you with less than stellar returns over time.
Gaining exposure to offshore markets is something that has become more readily available to the retail investor in recent years. Numerous offshore platforms provide direct exposure to foreign investment options while domestic platforms offer locally domiciled international feeder funds. These provide similar exposure to direct foreign investments, albeit denominated in rands.
As a result of the current climate, I find it prudent to invest no less than 25% off your assets offshore in stable, developed economies. These include the USA, Japan, the UK and the Eurozone.
Over the past 5 years, the JSE top 40 index has grown by around 40%, while the S&P500 (USA) and DAX (Germany) indices have grown by 63% and 55% respectively. In England, the FTSE100 index has only grown by 15%. Thus, gaining broad exposure to offshore markets not only helps you sleep at night, but it may also be profitable.
Figure 2. Comparison of global markets over the past 5 years. SPX – Blue(America), UKX – Red (United Kingdom), Dax – Green (Germany) vs the JSE top 40 (Orange line).
However, while it may seem simple to look at a five-year chart and point out that the JSE has underperformed both the S&P 500 and the DAX, it is important to note that there were periods of time that the JSE was the top performer in this group. So writing-off the JSE entirely, due to political considerations, is not a wise idea.
Thus, as with all other investments, diversification is key. Maintaining exposure of approximately 25-30% offshore assets is an intelligent hedging strategy against local political shenanigans.
The simplest way to get exposure to offshore assets is through an offshore equity or balanced fund. The Sharenet BCI Global Balanced Fund of Funds is invested in some of the top performing global equity and income funds, with the aim of producing less volatile returns than any of its single constituent funds. The benefit to you as the investor is that you have exposure to a broad variety of indices and offshore funds, meaning you can get exposure to many different assets through a single investment.
One of the great advantages of the fund is that it is invested in several low-cost index trackers. Index trackers have significantly lower fees than managed funds (but a higher degree of volatility). This allows Sharenet to pass these discounts on to you, meaning you pay less in fees and thus enjoy greater real returns on your investment.
Should you wish to diversify your investment portfolio, please reach out to me at Sharenet Wealth, and I will gladly assist you with an obligation-free consultation. Opening your offshore investment requires only a R25 000 lump sum or a recurring investment of R1000 per month.
Ricki specializes in the field of wealth management with a focus on holistic financial planning. He has a keen interest in the investment fields of property, technology, precious metals and cryptocurrencies. Ricki also holds a Masters degree in Science from the University of Stellenbosch.