Offshore investments 

Investing in offshore funds as a South African adds the potential for higher risk-adjusted returns, because it widens your choice of assets and offsets the risks of being invested in a single currency.

Offshore investing should not be a knee-jerk reaction to local crises, but part of every investor’s long-term portfolio diversification strategy.

Hedging the rand

Since currencies are highly volatile in the short term, taking an impulsive decision to invest offshore in the midst of domestic uncertainty is likely to result in losses on paper that will only be recovered years later.

In the medium to long term, the rand is likely to weaken against other key currencies, in line with the inflation differentials between South Africa and those economies. That means that offshore investments are a way to preserve your wealth from erosion caused by local inflation.

Fluctuations in the rand/dollar exchange rate are influenced not only by foreign investor perceptions of opportunities in South Africa, but by sentiment towards emerging currencies in general. An investment in a developed market currency like dollars, pounds sterling or euros can help to balance those fluctuations.

Greater choice

For investors, the wider investment universe available in offshore funds provides an opportunity for diversification into different types of assets and the shares of the world’s leading companies. However, these investments require a high level of specialist knowledge, so consider accessing them through a collective investment scheme.

It is worth remembering that there are periods when South African and emerging market assets as a whole outperform developed markets, so a well-balanced portfolio should include both regions.

What proportion of my assets should be in offshore investments?

There is no set rule of thumb for offshore investing. It depends on factors such as where you intend to retire, where your financial commitments are (e.g. supporting a child at university in the US) and your risk appetite (which includes how long your investment horizon is).

Many of the largest companies listed on the JSE have been diversifying globally in recent years, so they should also respond positively to rand weakness.

How do offshore investments work?

There are two offshore investment options for South Africans: either to invest directly in a foreign currency fund or to invest through a rand-denominated fund, called a feeder fund, that invests offshore.

Under domestic exchange regulations, South African residents over 18 may take up to R1 million a year in foreign currency (the single discretionary allowance), using only an ID or passport as identification. They may also take up to R10 million a year (the foreign capital allowance) on production of proof from the SA Revenue Services (the TCS PIN) that they are fully tax-compliant.

These allowances can be used for your personal investments, with none of the restrictions that apply to the assets held in pension or provident funds.

The detailed processes to utilise these allowances will be managed by the fund management firm, depending on the funds that you select.

What are feeder funds?

A feeder fund is an intermediate fund that accepts deposits from investors then channels (“feeds”) that money into a second, specialist vehicle called the principal fund.

For example, a South African investor could deposit a sum in rands with the Ashburton Global Leaders ZAR Equity Feeder Fund, which in turn will feed that money into the US-dollar denominated Ashburton Global Leaders Equity Fund (the principal fund). This investor would not need to produce proof of tax compliance.

The difference between direct offshore investing and investing through a feeder fund lies in the repatriation of proceeds. Capital (and proceeds like dividends and profits) invested offshore using the foreign currency allowances may be retained offshore, but all dividends and the proceeds from the sale of units in rand-denominated funds have to be paid out in SA.

Taxes on all proceeds, whether from an offshore-denominated or rand-denominated fund, are levied under South African law and payable in rands.

Types of offshore funds

There is a large range of different countries, currencies, asset classes and sectors to consider.

Tracker funds – these track the performance of a particular index or commodity, such as the MSCI All-Country Index (MSCI), the S&P 500 Index or the SPDR Gold Shares fund. They are passively, not actively managed.

Equity funds – these are actively managed funds holding shares in a single country or a number of countries, or in themes such as technology, utilities, high-yield, growth or value.

Property funds – usually called real estate investment trusts (REITs), these can invest in property in one or several countries or regions, and may be specialised in different property sectors, such as commercial, residential, retail, or industrial (including logistics/warehousing).

Bond/fixed interest funds – these funds can invest entirely in the debt issued by a single country like the US or in several countries, e.g. emerging market bonds. They can also specialise in different sectors, such as municipal or high-yielding debt.

Currency funds – they can specialise in tracking a single currency, e.g. the euro, UK pound or US dollar, against a basket of currencies, or they can track a basket of currencies, e.g. those in emerging markets. They normally allocate 80% of their assets to bonds and cash.

Hedge funds – there’s a huge range of hedge funds available, some of which are high-risk and others low-risk. They follow investing strategies, e.g. opportunities for capital gain arising from merger or takeover activities, or equity/mortgage arbitrage (highly leveraged bets on market movements).

Multi asset funds – invest across different asset classes, namely equity, property, bonds and cash, with a focus on lower risk and enhanced income.

Ashburton’s range of global funds

Ashburton Investments, which was established in SA in 2013, harnesses the expertise of the FirstRand Group to focus on delivering the best risk-adjusted returns through all market conditions. We have managed multi asset portfolios from Jersey since 1982.

In February 2018 we appointed Fidelity International, a leading international firm, to advise on global investing for the multi asset range, and in July 2019 Fidelity was appointed as sub-investment manager for these funds.

The multi asset range

Ashburton Global Balanced Fund – aims to deliver medium to long-term capital growth by taking a little more risk. It balances different assets, regions and currencies, holding at least 30% in fixed interest, money market and cash instruments and up to 60% in equities.

Ashburton Global Growth Fund – this is a dollar-denominated multi asset fund holding equities (up to 75% of the fund), cash, bonds and alternative assets. It targets superior capital growth over the long term, with a moderate to high level of risk.

Ashburton Global Defensive Fund – this low to moderate risk multi-asset fund aims to generate moderate capital growth and income over the medium to longer term. At least 45% of the fund is held in fixed income securities, money market instruments and cash, with a maximum of 35% in equities.

Ashburton Asset Management Fund (dollar, sterling and euro options) – a portfolio of long-term, “sleep at night” investments designed to deliver inflation-beating returns through all market cycles. The emphasis is on risk management and diversification. The risk rating is low to moderate.

Equity funds

Ashburton Global Leaders Equity Fund – a dollar-denominated fund that focuses on the world’s premier companies, which have a market capitalisation of at least $200 billion and are usually included in one of the major indices (FTSE-100, S&P 500, etc). These companies tend to deliver better risk-adjusted returns than bank accounts and bonds at a time when global interest rates are low. The risk profile is moderate to high.

Ashburton Chindia Equity Fund (dollar or sterling denominated)  – the fund targets capital growth through investing in shares in a wide range of different sectors in China and India. These are both countries with stable governments and long-term growth potential, but the focus on equities means this is a high-risk fund.

Global ETFs

Ashburton Global 1200 Equity Exchange Traded Fund – this is a high-risk fund that tracks the S&P Global 1200 Index.

Ashburton World Government Bond Exchange Traded Fund – offers exposure to the global bond market by tracking the Citi World Government Bond Index. It offers moderate risk.

     

Fixed income funds

Ashburton Money Market Feeder Fund (dollar and sterling denominated) – invests in high-quality, short-term money market instruments to maximise current income while preserving capital and liquidity. Risk is low.

ISIN GB0031953234 Sedol 3195323 Bloomberg ASHDLMU JY
Currency US dollar Risk rating Low Domicile Jersey
Launch date 18/10/2002 Fund size 106.7300 m Dealing Daily
NAV 1.2372 Daily change 0.00% Price date 30/11/2020
Cumulative performance since 2002: 3.1%

*Hover on chart to see values

Ashburton India Fixed Income Opportunities Fund – managed by teams of experts in Pune, India and New Jersey, US, this dollar-denominated fund invests in Indian government and quasi-government debt as well as cash. The risk rating is moderate.