South African investors invested in the Johannesburg Stock Exchange (JSE) over the last 15 years would have done extremely well for themselves – US$100 invested on the JSE All Share Index on 31 December 1999 would at 27 March 2015 be worth US$497, while the same amount invested in the S&P 500 would be worth US$187. Despite this, there are some very important reasons why prudent investors should look to invest in offshore markets.
One important reason is the sheer range of opportunities available externally. There are some 400 companies listed on the JSE, many of them world-class leaders in their industries. But this compares with the 44 000 or so counters listed on the world’s exchanges, covering industries not readily available on the JSE (such as technology).
Another is the concept of diversification, often regarded as the first rule in investing. While rigorous analysis and prudent assumptions ensure you make fewer mistakes, there will be mistakes nonetheless and therefore your eggs should not all be in the same basket.
For a South African investor, the motivation for global diversification should be to access asset classes which either show lower correlation to the local market or which offer growth opportunities not available in our market. Theoretically, diversification is only effective if assets with lower or negative correlation are introduced to the portfolio. Offshore equity, fixed income and property markets are not perfectly correlated to domestic equity, fixed income and property markets; in some asset classes and regions the correlation is actually quite low or negative, offering investors an opportunity to see value creation abroad when the local markets are under pressure.
Flowing from this concept is the need for investors to hedge against exchange rate volatility. Many South African counters provide an excellent hedge against rand volatility, but the ability to invest in foreign-listed firms expands this capability considerably.
The recent increase in the foreign capital allowance for South African residents (from R4 million to R10 million), announced in the 2015 Budget, highlights Treasury’s acknowledgement of the need to enable South African firms and individuals to expand and diversify internationally.
Investing offshore can be daunting, however. It is difficult enough to be adequately acquainted with the shares listed on the JSE, let alone become familiar with stocks listed on the various exchanges across the globe. Having a guide to help navigate international waters is always important; having a guide with a good track record is essential and when entrusting your money to a third party.
Investec knows that diversification is a cornerstone of any investment portfolio. The bank’s offshore offerings – for example, Investec Wealth & Investment’s World Axis portfolio now has a 10 year track record in offshore investment with over $1bn in assets under management – give investors access to some of the world’s leading firms, industries and investment managers, and is well placed to diversify client holdings abroad through a number of portfolios structured for varying risk appetites. This has been independently recognised by the likes of Euromoney and the Financial Times with Investec Private Banking and Wealth & Investment earning many accolades over the years. These have affirmed the relevance of Investec’s banking and wealth offering in catering to the needs of its South African private client base and have cemented the bank’s reputation as the leader in private banking.