Investing your rands offshore is about how not when

BY PIETER KOEKEMOER, HEAD OF PERSONAL INVESTMENTS, CORONATION

With persisting uncertainty around our country’s economic future, we understand that many South Africans may feel unsettled about their own financial futures. At Coronation, we believe that no matter the current market sentiment, it’s always a good time to consider the long-term benefits of owning a balanced portfolio of both international and domestic assets. It’s not a question of when to invest offshore, but rather how.

THE VALUE OF OFFSHORE DIVERSIFICATION

From a young age, we are taught not to put all our eggs in one basket. This truism stems from the value of diversification, which is the key benefit of having at least some of your assets offshore.

International assets improve your portfolio by diversifying economical, jurisdictional, currency, industry and companyspecific risks, without necessarily reducing one’s expected longterm returns.

Just consider the growth opportunities available through the more than 5 000 investable shares in the global universe that are not available in the local equity market, which consists of only 160 investable shares.

NO ASSET CLASS WINS ALL THE TIME

While much of the current emphasis is on how global markets performed better than the local market over the past decade, this has not always been the case. Over the past 20 years, the local market materially outperformed global equity markets, as the outcomes through most of the 2000s were very different to their more recent

performances. Another point to ponder is how US equity market returns dominated over the past decade. There is no guarantee that this outcome will be repeated over the next decade, especially considering the high valuations base in the US.

ACCESSING INTERNATIONAL ASSETS WITH CORONATION

1. The hassle-free option

Investors in Coronation’s multi-asset funds already have considerable offshore exposure. This is due to these funds’ international allocation consisting of both direct offshore exposure and indirect exposure (being the portion of the value we place on local shares that originate from economic activity outside our country’s borders). We believe multi-asset funds provide the easiest way to enjoy hassle-free international exposure, as you mandate the skilled fund manager to manage the size of the effective international allocation on your behalf. It is also easy to draw an income from these funds. They are accessible with low minimum investment requirements and can be used in living annuity portfolios.

2. If you want to further diversify your risk

By living and owning a home in South Africa, you already have significant country-specific risk, arguing for an additional international allocation. If you have discretionary (nonretirement) savings with which you want to further diversify your risk, you can consider investing in a rand-denominated international fund such as Coronation Global Managed and Coronation Optimum Growth. These funds allocate all or most assets to international investments, while remaining easy to use and access as they are operated from South Africa. While the funds provide full economic diversification, they still operate under the laws of South Africa and therefore do not provide diversification of jurisdictional risk, such as exchange controls, which limit the amount that any investment manager can invest outside of South Africa on behalf of clients.

3. If you want to achieve economic and jurisdictional diversification

If you have sizeable assets available for offshore investing, you can externalise your rands and invest in a fund incorporated in another country. In this case, the laws of the country of incorporation govern your investment. Coronation offers a range of funds incorporated in Ireland. While these funds have the same economic exposure as the rand-denominated international funds, it provides the added benefit of jurisdictional diversification. This route is more complex, as you are dealing with cross-border banking and you may have to apply for SARS clearance if you want to invest more than R1m in a given year.

REASON MUST BE YOUR GUIDE

When it comes to investing offshore, the message is to cut through the media hype of doom and gloom, and to keep your eye on your goals when allocating to international assets. It is also useful to avoid the myopia of the moment and take some time to consider the bigger picture.

When you unpack historical market returns, it becomes evident that investing is about well-considered diversification across asset classes and geographies rather than extreme, sentiment-driven moves between local and global assets.