A place for offshore equity ETFs in portfolio construction

Investing in offshore equity can play a valuable role in your portfolio, adding diversification and, depending on your investment time horizon, a significant difference in portfolio returns.

Investments in offshore equities are sometimes considered riskier compared to local equities and fixed income, but this does not make them less relevant in your asset allocation process.

The performance of the FTSE/JSE All Share Index has been tepid – having returned a nominal 4.73% annualised over five years to end August. South Africa’s weak economic growth forecasts could continue to constrain future returns.

Over a one year period, August 2018 - July 2019, South African equities went up by a mere 2.19%. In contrast, the Ashburton Global 1200 Equity Traded Exchange Funds (ETF), generated a total return of 10.29% over the same period. South African (SA) government bonds returned 7.65%, and short-term money market paper generated 7.33%.

Some allocation to offshore exchange traded funds via the Ashburton Global 1200 Equity ETF over this time would have enhanced the overall return of a portfolio made up of local assets only. During this period, the rand weakened significantly against the United States (US) dollar and a basket of other currencies, and the US equity markets outperformed their global counterparts.

Of course, the opposite can be observed in times of rand strength and relative outperformance of local assets. It is important to consider a well-diversified investment portfolio strategy and carefully select each building block by considering its specific risk/reward characteristics. Bear in mind that over longer time horizons, equity returns have historically outperformed those of fixed income and money market instruments.

Investors need to consider their risk tolerance and investment horizon when considering allocating money to offshore exchange traded funds with exposure to equity. The longer your time horizon the more likely a riskier portfolio will be able to weather the occasional market turbulence associated with riskier investments.

Investing in offshore ETFs

The Ashburton Global 1200 Equity Exchange Traded Fund (ETF) is suitable for investors seeking offshore equity exposure to developed and emerging equity markets.

It covers the largest 1 200 stocks in the world, representing 70% of the global market capitalisation. It is designed to track the performance of the S&P Global 1200 Composite Index, and it invests in the underlying equities of the index in their respective weightings on an optimised basis.

The fund offers investors exposure to emerging and developed markets across the US, Eurozone, Japan, Australia, Canada and Latin America as well as the currency fluctuations of the rand and the respective regional currencies.

You can get cost efficient access to the performance of the largest technology companies such as Apple, Microsoft and Amazon, through a single rand denominated investment without making use of your offshore allowance.