Investing offshore is not about the rand or pessimism; it’s about sound financial planning.
Most fund managers spent the last five years recommending that investors allocate a portion of their investment wealth offshore – yet it was only when the “Nene crisis” occurred and the rand collapsed overnight that many investors made the decision to transfer some money offshore in what can mostly be described as blind panic.
This knee-jerk reaction to bad news unfortunately creates a misperception of why one should invest abroad at all. It should not be a pessimist’s decision, but rather part of a diversified strategy for wealth creation.
Duggan Matthews, investment professional at asset manager Marriott, makes the argument that South Africa makes up less than half a percent of global stock markets and as residents, we are already heavily exposed to South African assets and currency through our lifestyle assets (home), pension funds and income.
Investing offshore provides South Africans with access to stable global brands, especially if the portfolio is geared to household names like Colgate, Nestle and Coca-cola.
Marriott recently launched its International Investment Portfolio which focuses only on quality, stable companies that are geared to benefit from the rise of the middle class in the emerging markets.
The aim of the fund is to provide South Africans with direct share exposure to household names which provide a decent dividend income, at a low price.
Quality stocks with attractive dividend yields
Marriott has a very clear investment philosophy, namely securities that produce reliable income streams that grow above inflation purchased at a reasonable price. That really means that they stick to quality stocks that provide an attractive dividend yield and over time, the dividend yield provides investors with an income, removing much of the stress associated with buying in the hope of shorter-term share price increases.
Matthews uses Colgate as an example of an international company that is well positioned to grow from the rise of the middle class in developing nations. Although a US-listed company, Colgate has market domination in emerging markets such as South Africa, Mexico, India and China. “The estimations are that globally, the middle class will grow from 2 billion to 5 billion people by 2030 and all these people need to brush their teeth,” says Matthew.
Not only should Colgate’s share price rise over time, but it is currently on a dividend yield of 2.3% in USD, which is double what you would earn from USD cash or even US bonds. In the last 50 years, Colgate has increased its dividend payments every year and there is no reason it will not continue to do so.
“We like companies that make everyday consumer necessities, are hugely predictable and have distribution networks globally that are well positioned to take advantage of the economic opportunity in the rise of the middle class in emerging markets,” says Matthews whose portfolio does not invest in the more volatile and unpredictable sectors such as mining or commodities.
So should you still take your money offshore at R16/$? “People still remember the rand trading at R7/$ and they think it could go back to those levels. A year ago people did not want to take their money offshore at R12/$. Now most are wishing they had,” says Matthews, who adds that an investor needs to look at the bigger picture of how they want their life savings invested and how much offshore exposure they should have rather than trying to find the perfect time.
Marriott’s International Investment Portfolio
The International Investment Portfolio is available to investors with funds offshore with a minimum investment of £25 000 (R575 000) and at only 0.75% fee per annum, it is one of the most cost-effective options for South African investors abroad.
South Africans can also invest in the portfolio with South African Rands via the Marriott First World Equity Feeder Fund with a minimum investment of R500 or R300 per month. The total cost is 1.5% per annum.
Invest offshore with your tax-free savings account
Currently the only way for South Africans to use their tax-free savings account to invest offshore is through db X-trackers – an exchange-traded fund (ETF) issued by Deutsche Bank which invests in global indices without the investor having to obtain an offshore account or a tax clearance certificate.
The db X-trackers ETFs provide index-tracking exposure to equity markets in the USA, UK, Europe and Japan and a mix of leading international markets via the MSCI World Fund, and are listed on the JSE. They can be purchased either through a stockbroker or through an investment plan with a lump sum of R1 000 or a R300 monthly debit order.
Although the asset management fee varies between 0.7% to 0.9%, investors via the Investment Plan platform pay an additional 1% per annum, bringing the total costs closer to 2% per annum.
This article first appeared in City Press.