THINKING ABOUT INVESTING OFFSHORE? YES? THEN ASK YOURSELF THE FOLLOWING QUESTIONS
Published December 2019
So you’re already saving for retirement and have some additional money you’re thinking about investing offshore. But you are not quite sure how to go about it.
Start by asking yourself where you plan to spend your money in the future. Knowing this will put you on the right track to making the correct offshore investment decisions.
Let’s say in future that you want to pay for a child’s international education, visit your children (and grandchildren) living on different continents, or you plan on living abroad yourself.
If these are your kind of goals, then consider investing in a hard currency-denominated international fund. These funds hold assets selected from all global markets and are managed to maximise returns in foreign currency terms.
Why invest in a hard currency-denominated international fund?
These funds benefit from the full externalisation of your assets: not only are they benchmarked against global markets, they are also established and regulated outside of South Africa and denominated in hard currencies. This means that when the time comes to spend your investment, you’ll know exactly what it’s worth – no dependency on rand conversion.
What opportunities can I access?
With the domestic economy only representing 0.6%* of the global economy, it is only logical that one can access a greater opportunity set by investing in a global fund. There are industries that are not available through assets listed on the JSE (e.g. information technology, biotechnology and electronics), and a much wider opportunity set within industries. One such example is F1 Group, one of the only global sports events owners that is investable via public markets. (You can read more about our investment in F1 Group here.)
Should I consider a single or multi-asset international fund?
You can choose to invest in a single-asset class fund (such as a global equity fund) or a multi-asset class fund (such as a balanced fund, which is diversified across the different global asset classes). With single-asset class funds, you take your own asset allocation responsibility and the risk is that you may be tempted to switch into or out of an asset class at the wrong time for emotional reasons, such as selling out of global equities after a period of poor performance. We believe that in times of increased economic uncertainty most investors are better served by investing in a balanced fund where the professional investment managers actively vary the exposure to different assets on your behalf.
However, not all multi-asset class funds are the same. Different funds meet the needs of different investors. At Coronation, we offer two international balanced funds, Coronation Global Managed and Coronation Global Capital Plus. Coronation Global Capital Plus is a lower risk fund, which means that it is suitable for investors who seek some exposure to global growth assets (such as equities and property), but who also cannot withstand potential negative returns over shorter time periods (such as 12-18 months). Coronation Global Managed may be more appropriate for those with savings goals of 5 years and longer and who are willing to withstand some shorter-term volatility in the pursuit of longer-term growth.
Each of the funds require a minimum investment of $15 000 (roughly R220 000 at current rates), but if you don’t yet have that amount saved, you can still choose to invest a smaller amount in the equivalent rand-denominated feeder fund. For as little as R500 a month, the feeder funds give you all the benefits of global exposure, while building up the capital to switch into a hard currency-denominated international fund, should you wish to at a later date.
What is the process to invest in such a fund?
South African investors can use all or some of their annual R1 million discretionary foreign allowance, as well as apply to SARS for an additional foreign investment allowance of R10 million per year.
Before investing, you first need to convert the rands into foreign currency. Your bank or specialist currency provider can assist in this process.
Not your type of investment goals?
Coronation offers a range of international funds to meet the many offshore investing needs of South African investors. All our funds are managed by our global investment team with a depth of experience across asset classes and geographies.
For more information about investing offshore you can read our Corolab guide.
The information contained in this article is not based on the individual financial needs of any specific investor. To find out more, speak to your financial adviser.
Coronation is an authorised financial services provider.
*Trading Economics, World Bank