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Investing offshore: Three common myths debunked

 

Investing offshore: Three common myths debunked
29-10-21 / Staff Writer

Investing offshore: Three common myths debunked

For some investors, the idea of offshore investing can be confusing, if not downright intimidating. But the reality is that it’s far less complicated than you might think. Lynn Bolin, Head of Communications at Prudential Investment Managers gives us three common ”myths” that she thinks are worth debunking:

Myth 1: Investing offshore is a luxury only for the wealthy

There’s a perception that only the wealthy can access offshore investments – that it’s a luxury that’s simply unaffordable for the average investor. While it’s true that some offshore investments can require hundreds of thousands of rands as a minimum, those are the exceptions rather than the rule. 

In fact, at Prudential, anyone can access the world’s markets via our rand-denominated global feeder funds for as little as R500 a month. Feeder funds are a great alternative for investors wanting access to offshore markets without the hassle of exchange control regulations or having to convert their rands into foreign currency.

Myth 2: Investing offshore is complex

There are two basic options to get the offshore exposure you need. You can either invest directly in foreign currency funds using your offshore investment allowance, or you can invest in rand-denominated funds (such as our range of global feeder funds) that invest offshore on your behalf. When you exit the funds, the first option pays out in the foreign currency, while the second pays out in rands.

If you want to invest directly into a foreign currency fund, you can invest up to R1 million a year without getting a tax clearance certificate from SARS. If you want to invest more than that (up to R10 million a year) you’ll need to go through exchange controls, get a tax clearance from SARS and send your rands overseas into the foreign currency funds of your choice. Either way, you’ll need to open an overseas bank account. This is a great option if you already have foreign currency outside of the country and prefer not to repatriate it, or if you’re planning to leave the country at some point and will need access to foreign currency (for example, if you’re planning to emigrate). Do remember, however, that these types of funds typically have higher investment minimums and often require you to invest with a lump sum, rather than a monthly debit order.

Myth 3: Investing offshore is more risky

If we’re honest with ourselves, most of us prefer to stick with what we know – what’s familiar makes us feel comfortable. When we invest in South African shares, we often know the companies we’re investing in – we’re familiar with their brands, businesses, and what they offer – we might even interact directly with them as customers.  Based on our perception of these companies, we can make the mistake of thinking that we can judge whether they’re a good investment or not.

When it comes to offshore investing, however, we’re literally in foreign waters where little is familiar, trusted and known.  And from this, it’s easy to deduce that because offshore investing is unfamiliar… it’s also more risky than staying local. Fortunately, when it comes to investing, unfamiliarity doesn’t necessarily equate to risk. Just because you might not recognise the names of all the companies listed on offshore markets, doesn’t mean that they are managed any worse (or better) than those listed locally.

This is where trust becomes so important. As an investor, it’s important to choose a fund manager, such as Prudential, that has a long-standing track record and where the team looking after your investment follows a rigorous, tried-and-tested approach to investing, which has proven to be successful for investors over the long term.

In fact, offshore investing means that you’re very likely to have exposure to companies that you don’t know. The JSE accounts for a very small portion of the global market, which means that there’s a whole world of opportunities that you’re missing out on if you don’t venture offshore. At Prudential, our offshore funds have been specifically designed for local investors in that they provide exposure to global sectors and regions that are underrepresented on the JSE.  

In addition, our Prudential Global Equity Fund uses the science of machine learning (artificial intelligence) to help the fund managers identify companies around the world that would be good candidates to invest in. This is certainly useful as there are over 6,000 companies to choose from. However, they never relinquish the art of human judgement when picking a share for the portfolio. You can read more about this approach here.

Hopefully, by debunking these three myths we’ve helped make offshore investing seem less complicated and daunting. Remember, the ability to diversify your investment portfolio beyond the opportunity set offered locally can have tremendous benefits over the long term, so don’t let fear of the unknown hold you back. Choose a fund manager with a proven track record that you can trust, and allow them to make your offshore allocation decisions and stock picks for you.  

For more information on investing offshore with Prudential, please contact our Client Services Team on 0860 105 775 or email us at query@prudential.co.za.

 

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