For many South Africans, offshore investing remains intimidating and we often see investors exhibiting what we call “home bias”. In other words, they prefer investing in local companies they know, understand and encounter in their daily lives.
While this hesitation is completely understandable, the reality is that offshore exposure has become a necessary part of achieving meaningful portfolio diversification. The good news, however, is that there are many ways to access offshore markets, and it does not have to be complicated.
Some investors choose to invest directly through an offshore platform by converting rands into foreign currency and purchasing international shares in their own name. Others prefer indirect exposure through rand-denominated feeder funds, global unit trusts or exchange-traded products listed on the JSE that track international markets. Many investors also gain offshore exposure through dual-listed companies such as Richemont, British American Tobacco and Glencore, which are available on the JSE while maintaining primary listings abroad.
The variety of options means investors can choose an approach that aligns with their circumstances, investment goals and comfort levels, but choosing the right investment vehicle upfront is what matters most.
Investors can invest in their own name, use an institution’s asset swap facility, or consider an offshore life wrapper. Each has different benefits, particularly from a tax and estate planning perspective. Starting with the wrong structure can become costly later, as changing course often requires selling investments, triggering capital gains tax and reinvesting.
Investing in your own name offers flexibility and control. You can choose the sectors and shares you want to invest in, tailor the portfolio to your risk profile and decide when to enter or exit positions. Many investors value this level of control because it allows them to respond to changing market conditions and take advantage of opportunities as they arise.
Others may find value in institutional asset swap facilities, which provide exposure to offshore markets while remaining rand denominated. These structures allow investors to access global markets without using their annual single discretionary or foreign investment allowances, the latter requiring tax clearance.
Offshore life wrappers are another option that is becoming increasingly popular, particularly among investors focused on estate planning. These structures can provide administrative simplicity, potential tax efficiencies and benefits for heirs, including faster access to assets and reduced estate administration complexities.
Once the appropriate structure has been established, the next step is to determine how to invest.
This is where many investors become captivated by the world’s largest technology companies. The so-called “Magnificent Seven” have delivered extraordinary returns over recent years, attracting significant investor attention. However, it is important to remember that investing offshore is not simply about chasing the most popular shares.
Investors should first define their risk profile and build a portfolio that aligns with their objectives. While technology companies can offer substantial growth potential, many pay relatively low dividend yields. A portfolio relying solely on capital appreciation may experience greater volatility than one that includes a broader range of businesses, sectors and income-generating investments.
For investors who are uncertain where to begin, broad-based exchange-traded funds can provide a practical starting point. These products offer exposure to diversified global markets while allowing investors to gain confidence and experience before selecting individual shares.
Most importantly, investors should avoid allowing short-term market movements to dictate long-term decisions. A common mistake is selling quality shares simply because they have experienced a period of underperformance. Market pullbacks are inevitable and even some of the world’s best companies periodically fall out of favour. Selling in frustration often means missing the recovery and future upside that follows.
Finally, investors must realise that they don’t have to do this on their own. To enjoy the full benefits of offshore investing, it’s worth approaching an experienced financial adviser who can offer guidance on the most appropriate investment structure, help define an investor’s risk profile, and identify investment opportunities that align with their long-term objectives.
Written By Wendy Myers, Head of Securities at PSG Wealth