A place for offshore equity ETFs in portfolio construction

There is no universal recipe as to what your portfolio should look like in order to achieve your investment goals. Asset allocation should be based on the individual’s needs in terms of investment horizon, how much money is needed and risk tolerance. The ability to take risk is largely a function of time, and the longer the time horizon the more likely a riskier portfolio will be able to weather the occasional market turbulence associated with riskier investments.

The objective is to target higher equity returns in the form of capital appreciation with less emphasis on income generation. The reality is that over longer time horizons, returns associated with equities historically have outperformed those of fixed income and money market instruments. So, investors looking for long-term investments with growth potential should consider offshore investments when diversifying their portfolio.

However, due to their inherent risks, investments in offshore equities are considered riskier relative to some other asset classes, but this does not make them less relevant in an asset allocation process. Depending on the time horizon and risk appetite, allocation to offshore equities can make a significant difference in portfolio returns.

To illustrate by way of example, an investment in the Ashburton Global 1200 Equity ETF over a one year period (August 2018 - July 2019) would have generated a total return of 10.29%. Over the same period, SA equities went up by a mere 2.19%, SA government bonds returned 7.65%, and short-term money market paper generated a positive 7.33%. Some allocation to the offshore ETF during this period would have enhanced the overall portfolio return made up of local assets only. During this period, the rand weakened significantly against the US dollar and a basket of other currencies, and the US equity markets have outperformed their global counterparts. Of course, the opposite can be observed in times of rand strength and relative outperformance of local assets. Therefore, it is important to consider a well-diversified portfolio strategy and carefully select each building block with their specific risk/reward characteristics in mind. As the saying goes, “don’t put all of your eggs in one basket”.

About the Ashburton Global 1200 Equity Exchange Traded Fund

The Ashburton Global 1200 Equity ETF was launched in October 2017 and it covers the largest 1 200 stocks, representing 70% of the global market cap. The fund is suitable for investors seeking offshore equity exposure to developed and emerging equity markets. 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.

By investing in the Ashburton Global 1200 Equity ETF, investors get 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.

Investors also get cost efficient access to the performance of the largest technology companies such as Apple, Microsoft, Amazon etc. through a single rand denominated investment without making use of their offshore allowance.

The ETF is traded on the Johannesburg Stock Exchange under the ticker ASHGEQ and is also accessible through a number of Linked Investment Service Platforms (“LISP”)