Illustration: Colin Daniel

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.”

Botha also suggests that local investors consider their options before taking money out of South Africa with the intention of banking it in an international savings account.  “Currently, global interest rates are so low that money saved in an international bank account will hardly earn any return,” says Botha. “While cash – whether dollars, euros or rands - is ideal for short-term financial goals, it is seldom able to deliver real growth over the long-term in order to outpace inflation when saved in a fixed deposit or bank account.”

Botha offers the following four tips to help investors when selecting a local unit trust with international exposure:

  • Choose a unit trust that is appropriate to your risk profile. When selecting a fund, investors need to ask themselves what they are trying to achieve and by when they want to achieve their investment goal. Knowing your time horizon is critical when establishing what level of volatility you can afford.
  • Establish how much money you can put away each month. One of the most significant barriers to generating wealth is not budgeting a defined amount of money to invest each month.  One way is to use the simple 50/30/20 budgeting rule: 50% of your salary should go to your living expenses, 30% towards flexible spending, and 20% should go towards investments.
  • Stick to your financial plan. Moving money offshore should never be the result of a reaction to short-term changes in the local environment. Taking money offshore, especially during times of uncertainty, when the rand is often at its weakest, can result in severe investment losses. Always stick to your financial plan, no matter the situation.
  • Pick the right partner. Investors looking to diversify their portfolio by adding an international component should seek out the right partner with a proven track record in global markets. Whether you are considering a multi-asset offshore fund - for those goals with shorter time investment horizons - or an offshore equity fund, there is a unit trust for every goal.