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By Helena Conradie*
All South Africans need some offshore exposure in their portfolios. Living in a small and struggling economy on the southern tip of Africa does not mean all your money needs to either stay here (physically) or only be invested here.
Helena Conradie, CEO, Satrix
South Africa has world class companies listed on the Johannesburg stock exchange. They are run by excellent CEOs and do produce fantastic earnings growth. Some of them have been able to branch out and diversify their earnings base so that they are growing market share and earnings in other jurisdictions which is fantastic for investors. But the fact of the matter is that you are still missing out on exposure to industries, technologies and sizable markets which South Africa just can’t offer. Don’t limit where you can invest your money. Have a look at offshore options too.
Years back, offshore investing was a real trial from a South African point of view. Today you have many more choices.
The most popular options are:
OPTION 1: Physically taking your money offshore i.e. going through the exchange control process, opening up an offshore bank account and sending rands overseas into a currency of your choice.
OPTION 2: Investing in rand-denominated investment options. Your investment and currency exposure is foreign, but you invest in rands and get paid out in rands i.e. your money does not physically leave South Africa.
Which option you choose depends on your circumstances. Both however, give you the foreign exposure you desire and a hedge against rand depreciation because your money is invested in foreign currencies.
The next step is to decide which funds to invest in. Offshore index trackers like the one’s Satrix manages are great options because they are broad based, cost effective and there are choices available to suit OPTIONS 1 or 2 above.
You can buy ETFs listed on the JSE or physically take your money offshore and invest it in one or more of our offshore unit trusts. We are also extremely excited to announce that we will be launching a range of offshore ETFs this year which will all be listed on the JSE. If you are fortunate enough to be able to purchase units through the IPO (initial public offering – which allows you to buy before the ETFs are listed), you also pay no transaction costs and your investment starts at the very first price on the market.
To understand the table above, you really need to focus on the currency column. Funds denominated in a foreign currency require that you take your money offshore and invest in the funds there. If this sounds too complicated, contact your financial advisor who will assist you with the paperwork and fund choices.
Funds denominated in ZAR are what we call rand-denominated offshore funds. These funds are priced in rands, but your capital is invested offshore which gives you the global diversification and foreign currency exposure you’re after.
You don’t need SARS tax clearance to invest in these funds as your investment is made in rands and paid out in rands on disinvestment in South Africa. You are also able to set up a debit order and the lump sum minimums are a lot lower than in OPTION 1 above.
Read also: Satrix shares…are ETFs really that cheap?
Remember that if you are contributing to a pension fund or retirement annuity you may very well have offshore exposure in your underlying investment choice. Regulation 28 which governs how pension funds are to be invested stipulates that a maximum of 25% of your capital can be invested offshore excluding Africa. If you find you don’t have this exposure consider using the Satrix MSCI World Equity Feeder Fund as part of your portfolio.
So what should you consider?
Whilst investing offshore should primarily be about global diversification, accessing different industries, interest rate and inflation regimes and stronger economies, for South Africans it is about much more.
If political risk is your primary concern, you need to consider OPTION 1 and actually move your capital offshore. Investing this way means you never have to repatriate or convert the investment back into rands unless this is your choice.
If you don’t have a large lump sum, but still want a rand hedge investment option then Option 2 is the way to go. You can always save in this vehicle until you reach the minimums for Option 2 and then move the capital offshore.
Whatever your concern, as a South African serious about your financial well being you need to consider a portion of your total portfolio being invested offshore. And always remember, stock market investing is a long-term game (5-7 years minimum).
As always and till next time, #JUSTSTART.
*Helena Conradie, CEO of SATRIX
*Satrix Managers (RF) (Pty) Ltd (Satrix) a registered and approved Manager in Collective Investment Schemes in Securities and an authorised financial services provider in terms of the FAIS. Collective investment schemes are generally medium- to long-term investments. Unit Trusts and ETFs the investor essentially owns a “proportionate share” (in proportion to the participatory interest held in the fund) of the underlying investments held by the fund. With Unit Trusts, the investor holds participatory units issued by the fund while in the case of an ETF, the participatory interest, while issued by the fund, comprises a listed security traded on the stock exchange. ETFs are index tracking funds, registered as a Collective Investment and can be traded by any stockbroker on the stock exchange or via Investment Plans and online trading platforms. ETFs may incur additional costs due to it being listed on the JSE. Past performance is not necessarily a guide to future performance and the value of investments / units may go up or down. A schedule of fees and charges, and maximum commissions are available on the Minimum Disclosure Document or upon request from the Manager. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Should the respective portfolio engage in scrip lending, the utility percentage and related counterparties can be viewed on the ETF Minimum Disclosure Document. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The index, the applicable tracking error and the portfolio performance relative to the index can be viewed on the ETF Minimum Disclosure Document and/or on the Satrix website.
*Sanlam Investment Management (Pty) Limited (SIM) is an authorised financial services provider, in terms of FAIS Act. Satrix act as a division of SIM who is responsible for the management the Funds. Changes in exchange rates may have an adverse effect on the value, price or income of the product.
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