For many South African investors, the idea of investing offshore can seem complicated, expensive or reserved for wealthy individuals. However, global investing has become far more accessible in recent years, and it can play an important role in building a well-diversified portfolio.
Offshore investing is not about abandoning South African investment opportunities or moving all your wealth offshore. Rather, it is about broadening your investment universe and gaining exposure to companies, sectors and economies that are not fully represented in the local market.
Breaking down the misconceptions
One of the biggest misconceptions is that you need millions of rands before offshore investing becomes worthwhile. While the appropriate starting amount depends on the investment vehicle, fees and individual circumstances, accessing offshore markets with relatively modest amounts is possible
Another misconception is that offshore investing requires selecting individual international shares. In reality, you can gain global market exposure through managed unit trusts.
There is also a perception that offshore investing is simply about investing in the US. While this represents a significant part of global markets, the offshore opportunity set extends across developed and emerging markets, currencies, industries and economies.
How much do you really need to get started?
Investors do not need to save up significant amounts before considering offshore exposure. Most platforms have certain minimums that allow you to start with an amount that is affordable and sustainable. Increasing your contributions over time can be more valuable than continually waiting for a larger capital base. Even more significant than the amount to be invested is getting professional advice to understand the role offshore exposure should play in your overall financial plan. Below are some of the basic considerations.
Accessing opportunities beyond South Africa
South Africa represents only a small part of the global investment universe. Many of the companies shaping global technology, artificial intelligence, semiconductors, healthcare, pharmaceuticals, international consumer brands, infrastructure and renewable energy are listed beyond South Africa’s borders.
This does not mean that offshore investments are automatically better than local investments. Rather, the benefit lies in having a broader opportunity set. A global portfolio allows you to participate in different economic drivers and reduces reliance on the performance of a single country or economy.
Where do emerging markets fit in?
Offshore investing should not be viewed solely through the lens of developed markets. Emerging markets can play a valuable role in a diversified portfolio by providing exposure to economies with different demographics, consumption patterns and growth drivers.
For years, the default framing in global investing has been simple: developed markets are the ‘safe’ core, while emerging markets are an optional, higher-risk satellite. That framing is becoming less clear-cut. Many developed economies now resemble the heavily indebted, structurally challenged economies of two decades ago, while a growing number of emerging markets display the very characteristics investors once associated with the developed world such as stronger growth, more favourable demographics, improving fiscal discipline and, crucially, more sustainable debt metrics. On average, advanced economies are running public debt ratios close to or above 100% of their gross domestic product, whereas many emerging markets have lower median debt burdens and higher growth trend, even as dispersion across these markets remains wide.
The objective of diversification is not simply to own more investments. It is to combine different markets and asset classes that can behave differently under changing economic conditions.
Taking the first step
A financial adviser will help you to start by identifying your objective. They look at whether you are investing for retirement, long-term wealth creation, a child’s education or simply greater diversification. They will look at your existing portfolio and establish how much offshore exposure you already have, including indirect exposure through local funds.
Offshore investing should not be about chasing the latest international investment trend or reacting emotionally to local market conditions. At its core, it is about working with an adviser to build a portfolio that is diversified across geographies and participating in opportunities beyond an investor’s home market.
By Thomas Berry, Head of Sales at PSG Wealth