Globalisation and the evolution in stock market technology and products have rendered the borders of countries obsolete. The movement of money across jurisdictions is becoming faster and spreading over a more diverse investment universe, which in most cases can be executed from the comfort of your own home. South Africa is no different with offshore investment options piquing greater interest amongst local investors in a current climate of economic strife and political uncertainty.
South African exchange controls do muddy the water somewhat, but there are plenty of inland and outland offerings to ensure your portfolio is sufficiently diversified geographically.
The reasons to take your hard-earned cash to foreign shores have not changed. SA contributes less than 1% to global GDP, which is a staggeringly low number when considering exposing all your investment capital to it. Furthermore, predominant SA-based companies have little or no exposure to so many global growth industries. It is also no secret that the local consumer and the rand is struggling. And then there is the political risk. Current party picketing around the upcoming elections and the media coverage around that makes this point self-explanatory.
What’s most important is that as a South African investor you need a solid long-term offshore strategy in place to help you meet your investment goals. Investing internationally should be about diversification and gaining access to companies and industries that you can’t find on the JSE, not simply about trying to benefit from currency movements. There is plenty of evidence available about the better returns currently available overseas and away from the risk of the SA market, yet it is not always clear to the layman on how to get that exposure in an affordable, understandable and legal manner.
It is important to know that a proper balanced portfolio is not a luxury reserved for the mega rich individual or large institution.
It is possible to get exposure to offshore fortunes via index trackers from Satrix, like the Satrix MSCI World ETF, which offers a broad exposure to developed markets; the Satrix S&P 500 ETF, which tracks the iconic large-cap index in the US; and the Satrix MSCI Emerging Markets ETF’s MSCI World exchange. CoreShares has the Global DivTax, S&P Global Property and the S&P in stable. Sygnia and Stanlib also offer some offshore tracker funds.
The benefits of this approach would be that it is low-cost, efficient and circumvents the red tape of exchange controls involved with taking cash offshore in bulk and directly. The number of international exchange-traded funds (ETFs) on the JSE has also grown significantly in the last few years, giving investors a wide range of choices, and the option to get involved from as little as R300 to R500/month.
The alternative is to invest through global equity unit trusts. These can be accessed either through tax-free savings plans, such as those offered by Investec or Allan Gray, or directly from the asset managers themselves. Many index funds offered by the same providers as the ETFs mentioned above, are also available in unit trust form.
There are other funds available directly from asset managers themselves or on indirect platforms via your pension fund, retirement annuity or preservation fund. Examples include but are not limited to the Coronation Global Opportunities Equity Feeder Fund, the Stanlib Global Equity Feeder Fund and the Prescient Global Equity Feeder Fund.
Some of the rand hedge funds used by Brenthurst Wealth include the Investec Franchise Feeder Fund, the Sygnia 4th Industrial Revolution Global Equity Fund and the Global IP Opportunity Fund. The list of options is endless and investors are spoilt for choice. Investors should, however, fully understand the level of risk associated with some of these options and consider decisions suited to their risk appetite.
One can also consider opening a bank account in another country, or buying a property abroad if you prefer a purer asset play, but that is where things get a bit more complicated. Each South African resident has an annual foreign investment allowance (FIA) of R10 million in terms of cash control, which can be sent offshore. A tax clearance certificate is needed in order to externalise funds via your FIA. This is a relatively simple online application that is done on your Sars e-profile platform. Once a tax clearance certificate is issued, on presentation, your bank will remit the funds abroad. Investors can also use a further allowance of R1 million per calendar year (known as a single discretionary allowance or SDA), which does not require tax clearance.
Funds sent offshore via either a SDA or FIA may remain abroad and be invested freely. There is no requirement for it to be repatriated back to SA. South Africans might also be subject to local taxation on all the income and capital gains earned outside the country.
As with all investment selections, in view of the vast array of investment options, it is highly advisable to consult a qualified, experienced financial advisor.