Over the past 5 years, our local equity market has stagnated and the value of your wealth in US$ terms is the same it was five years ago (see below). If you factor in inflation, you have actually been getting poorer. Should we now all go out and sell all our local equities and take the money offshore? That might not be practical, but you could (and should) at least invest a portion of your wealth offshore.
Analysis shows that the ZAR has been depreciating by about 5.5% pa on average versus the US$ and Euro over the longer term. So, it makes sense to invest at least a portion of your wealth offshore to protect the value in global terms. The guidelines of the Pension Fund Act (Regulation 28) recommends that about 30% of your retirement funds should be invested offshore. We do not all have the same circumstances and some people should invest more or less money offshore, but it is not prudent to have zero offshore.
Diversification of your investment is important and to show just how important, we have summarised the returns of an initial investment of $100 for a period of 5 years. The results speak for themselves:
Global markets have become readily accessible to the South African investor. Without a compelling reason to restrict investment to only SA-based assets, you should be asking yourself why you haven’t explored this avenue. Even if you achieved a seemingly good return on your local investments in the past, you only get to see the real picture when you look at the diminishing purchasing power of the ZAR in the global market. How often have you dismissed the idea of a trip overseas because the ZAR is weak? Every year the ZAR loses out against the likes of the dollar, pound and euro.
An easy alternative to investing your money locally in the equity market, is placing it in a locally accessible Global Balanced High Equity unit trust. This provides you with direct access to major currencies, regions and countries. The graph below shows the performance of the All Share Index and the average return of the Global MA High Equity unit trust sector (Global Balanced) over the past 5 years. This shows that the Global Balanced unit trusts provided out-performance over most periods, except in December 2017 when we got carried away by the Ramaphoria effect where the ZAR strengthened to R12 against the US$.
Table 1 also shows that an investment in the MSCI World Index would have given you attractive returns over time, but not all investors’ risk profiles would allow an allocation to a pure equity weighting considering the volatility of the index. It would be prudent to rather invest in a balanced mandate, like the Global Balanced unit trusts. Why? Not only are the returns of the Global Balanced funds attractive, but with less volatility than a pure equity portfolio due to the diversified asset approach. This ensures more peace of mind, plus it makes it easier to do financial planning. It is very difficult to do financial planning if the value of your investment keeps fluctuating.
The reason most people do not invest offshore, is primarily because of the misplaced perception that it is very expensive. In addition, there are concerns about complex Forex regulations and allowances. That may have been the case many years ago, but investing offshore today is just as easy as investing in a local share account or unit trust.
Using the Sharenet BCI Global Balanced Fund of Funds as an example:
- There are ZERO initial or withdrawal fees, 100% of funds deposited gets invested.
- There are no forex regulations or allowances to consider. You simply invest your Rands and the money is directly invested offshore in US$, Euros, GBP, etc.
- Almost 90% of your funds are invested in ETF’s (exchange traded funds). This ensures the lowest possible costs plus the highest liquidity. This is probably the lowest cost option if you want to invest offshore.
- Investing in ETF’s enhances the ability to actively manage the global asset allocation and spread of assets over countries and areas. It offers high liquidity plus very low trading costs.
- The funds are invested across the world using the weights of the MSCI World Index as a benchmark. This ensures that you are invested in all the major countries and areas globally.
- Your funds are invested in hundreds of the most prominent companies around the world, diversifying your investment and providing protection should any of those companies go bankrupt.
- The fund offers high liquidity: you can withdraw your money using a simple online instruction and it should reflect in your bank account within 3 days.
With this in mind, why not consider our experienced team to assist with your Offshore Investments or general Wealth planning requirements. For a no-obligation consultation, you can complete the below form and we will have you globally diversified in no time.
Chief Investment Officer
Kobus Louw hails from Port Elizabeth where he completed his B.Sc Hons degree, before graduating from Stellenbosch University with an MBA in 1988. He began his career in the actuarial division at Sanlam, later moving to the investment department. After a two-year period working at Unicorn Lines in Durban from 1979-80, Kobus helped to set up and manage an investment information systems department at Sanlam, after which he moved to the field of portfolio management at Sanlam Investment Management, eventually becoming head of Portfolio Management in 1998. In 1999, Kobus joined Cadiz Asset Management as one of its founding members in charge of new product development initiatives and the refocusing of the active management team’s efforts. Kobus resigned from his position as Director and Chief Investment Officer at the end of 2004 and took up the CIO role at Contego Asset Management, focussing on the investment process and developing new offerings until 2016 when he joined Sharenet.