NOVARE ACTUARIES & CONSULTANTS (PTY) LTD
Actuaries in Cape Town

Why every investor should think about adding offshore investments to their portfolio share via. Why every investor should think about adding offshore investments to their portfolio. The recent volatility of the rand, with experts predicting further weakness, as well as extended low growth in local markets, has led many investors to cast their eyes offshore. No investment should be made on sentiment or emotion alone, so what exactly constitutes a considered approach to offshore investing? Additionally, offshore investing needs to be weighed up against the value that can be had in the local market. If local opportunities for growth abound, then these need to be weighed up against offshore opportunities that may be more costly to invest in. In addition to accessing strong-growth markets, offshore investing also offers diversification benefits. Once the door is opened to offshore investments, an investor’s opportunity set expands drastically. Currently, there are just over 400 shares listed on the main board of the JSE, whereas the latest data from the World Bank shows that there are more than 45 000 listed companies globally. Offshore investing also offers opportunities beyond a well-diversified portfolio. It allows for liability matching in a different currency. For instance, if you have a child who might study abroad, you can start saving towards it in the relevant currency. If one attempts to save in rands and translate a lump sum at a future exchange rate, it could prove insufficient solely due to an unfavourable exchange rate at that point in time. Consistent savings earn interest in the foreign currency and smooths out fluctuation risk over the long term. As with any investment, offshore investing does bring with it its own set of risks. These risks can be managed by the prudent investor and their financial advisor. If an investor was to repatriate all offshore assets at a certain future date then an investor would be taking on currency risk. However, this could potentially be to their advantage if the Rand depreciates. If a portion of an investor’s future expenses is denominated in foreign currency, then some risk would be taken off the table. Although Van der Merwe stresses that the optimal manner in which offshore exposure is obtained depends on the individual’s investment strategy or goals, multi-managed products unlock significant benefits. These include a broader reach across international capital markets, an ability to negotiate lower fees with underlying managers, due diligence on investment managers and their operational frameworks, access to world-class funds that may be closed to new investors, and a simplified avenue through which all offshore assets are managed. Considering the mandate of the fund, the manager could tactically position the portfolio to be more overweight in one asset class (or market) and underweight in another. Underlying investment managers who specialise in an asset class and market would then typically be selected to manage the respective allocations in the fund. First quarter confirms local and international markets are under pressure. It will be the sole responsibility of the recipient to consult his/her own financial advisor or other professional advisor and to carry out such other investigations as he/she considers necessary with respect to the website content.