What’s to gain from investing offshore

Offshore investing offers South Africans unique and compelling benefits – the most fundamental of which is spreading your overall investment risk.

Diversification is a cornerstone of long-term investment strategy, and essentially refers to spreading your risk. This is important because there are many factors that can affect individual assets or classes of assets – from global pandemics to societal and cultural trends, downgrades in a country’s investment status, property or oil prices, import and export regulations, the rise or collapse of a multinational, and innovations or automation within a specific industry, to name a few.

Because assets all perform differently under changing conditions or events, the goal is to balance your overall portfolio so you’re not adversely affected by big changes.

“Gaining offshore exposure is an excellent idea for medium- to long-term investors. Almost everything we buy is impacted in some way by the global economy. It’s estimated that up to 64% of household expenditure is impacted by currency movements – so portfolios need diversification to cater for this,” Discovery Invest’s Head of R&D, Craig Sher, says.

Discovery Invest in 2020 launched a much-enhanced global investment solution that uses shared value to create the world’s first exchange-rate enhancer, and offers investment choices advised by world leaders in asset management, BlackRock and Goldman Sachs.

The first advantage of global investing is geographical diversification. The JSE offers investors a degree of international exposure because many locally listed companies are multinationals. However, this is limited to the specific geographic regions these companies operate in.

It’s worth noting that the JSE accounts for less than 1% of the global equity market

Secondly, global investing gives you access to new opportunities in sectors that perform strongly, but are not readily available on the local market. Technology, for example, makes up over 20% of the S&P 500 and has achieved a return of close to 50% over the last year. Auto manufacturer Tesla was up over 500% over one year, and industries like renewable energy and healthcare are also well-primed for growth.

“It’s worth noting that the JSE accounts for less than 1% of the global equity market, so a significant majority of investment potential lies beyond our borders,” says Sher.

Finally, there’s currency diversification. Having investments in hard currencies like US dollars, British pounds or euros can help even out the volatility of the rand, and a combination of assets in rand and other currencies will make for a more balanced portfolio as overall losses and gains average out.

“A great way to enter the global market is to take advantage of Discovery Invest’s world-first exchange-rate enhancer,” says Sher.

The Discovery Global Endowment lets medium- to long-term investors buy in at much lower than the prevailing exchange rate on qualifying investment choices. This provides, by far, the best effective currency conversion for your money, no matter when investors decide to start a global investment.

“Starting is something all investors should consider. A properly diversified investment portfolio is far less at risk of poor performance or irreversible capital loss. It’s also well positioned to gain from the global economic recovery taking hold amid vaccine rollouts for COVID-19,” Sher concludes.

Craig Sher, Head:R&D, Discovery Invest