How to diversify your exposure offshore
If you live in South Africa, you live in an emerging market. We make up less than 1% of global GDP (Gross Domestic Product) and we have a very murky outlook where economic growth is concerned. The rand has depreciated precipitously against all developed market currencies over the past year and there is a very real possibility that international ratings agencies will downgrade South Africa to junk status before the end of the year. It would be remiss of you not to consider diversifying a portion of your assets offshore, and mainly into developed markets.
We have listed two ways in which offshore exposure can be obtained.
OPTION 1: You physically take your money offshore i.e. by going through the exchange control process, opening up an offshore bank account and depositing rands overseas into a currency of your choice.
OPTION 2: Investing in rand-denominated offshore investment products. Your investment and currency exposure is foreign, but you invest in rands and get paid out in rands i.e. your money does not physically leave South Africa.
With option 2, you don’t need SARS tax clearance to invest in these funds as your investment is made in rands and paid out in rands upon disinvestment in South Africa. You are also able to set up a debit order and the lump sum minimums are a lot lower than in option 1 above.
Please be aware that offshore investments such as these expose you to exchange rate risk, which is the risk that your investment value changes due to fluctuations in the currency exchange rate.
The Satrix MSCI World Equity Index Feeder Fund is a rand denominated fund that gives you offshore exposure. This unit trust tracks the MSCI World (DM) Equity Index which spans more than 1600 stocks across 23 developed markets. A feeder fund is a portfolio that, apart from a cash component, consists solely of participatory interests in a single portfolio of a collective investment scheme. The Satrix MSCI World Equity Index Feeder Fund invests in the dollar based Sanlam World Equity Tracker Fund listed on the Irish Stock Exchange.
POSTED : 8 DECEMBER 2016