Get best offshore exposure with a local unit trust
Given that South Africa’s gross domestic product (GDP) represents only 1% of the world economy, exposing your investment portfolio to international markets offers local investors a world of growth and reduces the concentration risk of one market.
However, choosing an affordable offshore investment vehicle can be a challenge.
This is according to Elize Botha, Managing Director of Old Mutual Unit Trusts, who 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.
“However, this process very often only tends to benefit wealthier investors – those prepared to deal with the extra complexity of buying foreign currency and with sufficient 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 Sars.”
She says that local investors can benefit even further by using their tax-free allowance.
That can be used to invest in a local tax-free unit trust which is exposed to potentially lucrative 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.
“This is 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,” she says.
“While cash, whether dollars, euros or rands, is ideal for shortterm 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.” – Moneyweb