OFFSHORE SUPPLEMENT
30 November 2020
MARTIENS BARNARD Marketing Actuary, Momentum Investments
USING GLOBAL DIVERSIFICATION TO REDUCE RISK
I
nvesting offshore can yield great benefits for an If you are investing as a South African individual investor. Even though we expect this to be true, older than 18, you have a yearly discretionary our mental biases make it difficult for us to do allowance of R1m and an offshore investment it. We tend to stick to what we know and ignore the allowance of R10m to exchange rand for foreign benefits of spreading our eggs across the different currency, which you can invest abroad directly. baskets of foreign markets. Momentum Wealth International is a worldBy only investing locally, an investor is missing class platform that administers the International out on a significant portion of the global economy. Endowment Option and the International Investment International markets give you access Option. The International to countries with different currencies Endowment Option provides SITUS TAX and economic cycles, as well as asset South African investors with a taxAND PROBATE classes and industries that are not efficient insurance product to invest available locally. A good example their money in. The International COULD HAVE of this is global technology and Investment Option is designed for SIGNIFICANT entertainment companies like Apple investors who require maximum and Netflix. flexibility and easy access to their CONSEQUENCES In addition to these benefits, offshore investment portfolio UPON DEATH OF diversification is an important whenever they need it. THE INVESTOR principle in reducing investment risk, There are also other ways to and global diversification is a powerful invest offshore without having to WHEN THE tool to limit the effect of volatility on use your yearly offshore allowance, INVESTMENT IS your investment portfolio. particularly for local trusts and NOT STRUCTURED companies, which do not have By investing offshore, an investor also reduces emerging market risk. an offshore allowance. This can CORRECTLY International investors are more likely be done by investing rand into to invest in emerging markets while the good news rand-denominated international funds, or funds lasts, but can quickly disinvest when investment denominated in a foreign currency (using the sentiment sours. This rapid change in demand and allowance of the investment company where you are supply for shares and bonds brings about greater investing, e.g. by using a local endowment to invest volatility in emerging markets, including South Africa. into dollar-denominated funds). If you or your clients are considering living abroad, be it permanently or only for a while, one Getting to grips with offshore investing of your greatest risks is rand depreciation. The The definition of an international finance centre growth on local investments may not be enough (IFC) is a country or jurisdiction that provides to make up for a weakening rand, and by having financial services to non-residents on a scale that offshore investments, you can maintain the offshore is incommensurate with the size and the financing currency’s spending power. of its domestic economy. Some of the well-known
ones are Guernsey, Jersey, Hong Kong, Isle of Man, Luxembourg and Switzerland. International investment platforms conduct their business from these IFCs and the jurisdiction in question is an essential part of any due diligence when choosing an investment platform. The Momentum Wealth International platform is a Guernsey-based entity as opposed to a South African-based entity. The Guernsey jurisdiction offers an effective regulatory and fiscal framework, together with investor protection policies through trustee and nominee company structures. Two additional aspects to keep in mind are situs tax and probate. Situs tax is a type of tax equivalent to South African estate duty. Probate is a procedure where a will is approved by a legal authority as the valid and last will of a deceased testator. Situs tax and probate could have significant consequences upon the death of the investor when the investment is not structured correctly, e.g. situs tax of up to 40% can apply. For example, if an investor bought 53 shares in Amazon for $100 000 at the start of the year, the value would have grown to over $165 000 at the end of September. If the investor died and situs tax of 40% was charged on the $165 000, the remaining value would be less than the original $100 000 invested. As part of your investment journey, it is imperative that you partner with the right experts who have a combination of global reach and local presence, as well as deep industry expertise across markets. To cut through all the complexity, we have a worldclass portal at momentum.co.za to address your offshore investment concerns and challenges. Visit our Global Matters portal for independent views on offshore investment advice, legislation and top-ofmind matters to structure your clients’ investments and get them to their investment goals.
RIDING THE WAVES OF GLOBAL EQUITY MARKET VOLATILITY
I
n these turbulent markets, many investors are looking at broad, global benchmarks for their investments and to reduce their stock selection risk by tracking indices. According to research by Investec Structured Products, only 50% of global funds outperformed a Global Diversified World Price Only Index after fees, over the last five years to July. In response, Investec Structured Products is launching a new investment, called Advanced Investment Holdings Limited. The investment offers participation across four of the world’s leading markets by region, namely the US, Europe, Japan and emerging markets, but with 100% downside protection. The investment is linked to the S&P 500 (40%), the
Eurostoxx 50 (30%), the Nikkei 225 (15%) and the MSCI Emerging Market Index (15%). “The investment offers participation in all of the major global equity investment themes – from US tech to Asian tech, and from European recovery to commodity strength,” says Japie Lubbe, Structured Products Consultant at Investec Bank. One of the concerns for investors right now is the impact of second waves of COVID-19 on many of the world’s leading economic regions, such as Europe and the US. Thanks to improved treatments, better testing and tracking methodologies, it’s unlikely governments will have to resort to the draconian measures introduced earlier this year. However, the second wave
14 WWW.MONEYMARKETING.CO.ZA
has created enough doubt about the feasibility of a synchronised recovery across the world. While equities have generally been the best option for investors over the long run, it is difficult to call, against an uneven backdrop, which geographies and sectors will offer the best returns. However, many investors will still prefer this asset class in an environment of very low prevailing and expected interest rates. A globally diversified equity portfolio is generally regarded as the best strategy over a long-term horizon. Diversification across geographies
and sectors can also offer good riskadjusted returns over the short and medium-term, but investors will still face some degree of volatility. Advanced Investment Holdings Limited is a five-year investment, with 100% downside protection if the investor remains invested for the full term. The investment is in US dollars, with a minimum investment of $13 000.
