Given that South Africa’s GDP represents only 1% of the world economy, exposing your investment portfolio to international markets offers you a world of growth opportunities and reduces the concentration risk that comes with investing in one market. However, choosing an affordable and practical offshore investment vehicle can be a challenge.
Elize Botha, managing director of Old Mutual Unit Trusts, believes that South African investors can mitigate many of the complexities of offshore investing, including regulation, differing terminology, and the sheer magnitude of options, by merely investing in a locally registered unit trust with exposure to offshore assets.
"The purest form of investing offshore is physically moving your money out of South Africa by converting rands to a foreign currency and reinvesting it in an international market," says Botha. “However, this process often only tends to benefit wealthier investors – those prepared to deal with the extra complexity of buying foreign currency and with the resources to afford the higher minimum investment amounts required."
Investing in a locally registered rand-denominated unit trust, on the other hand, offers broad-based exposure to global growth assets such as shares and international property,says Botha. “This option offers investors simplicity, a wider choice of asset classes, flexibility and cost efficiency, without worrying about getting a tax clearance certificate from the South African Revenue Service.”
She says that local investors can benefit even further by using their tax-free allowance to invest in a local tax-free unit trust exposed to global markets. "Except for performance fee funds -those unit trusts that charge additional fees for meeting specific targets - multiple award-winning funds are available tax-free,” says Botha. “This means investors will pay no capital gains tax on the growth of contributions to the maximum of a lifetime limit of R500 000, regardless of the fund’s performance, which is a great incentive for first-time investors.”