The volatile Rand continues to make the case for investing offshore a hotly discussed topic. If you invested in January when the R/$ was 16.7 a market-neutral translation would mean your investment is now down 13%. Or if you invested offshore at the beginning of last year when the R/$ was 11.5 a market-neutral translation would mean your investment is now up 25%, at the current Rand/Dollar of 14.5.
In a recent article from Coronation they discuss the case for investing offshore. The key points are summarised as follows:
With the weaker Rand over the last five years and an increase in offshore developed market shares the valuation opportunity between local and offshore has narrowed. Despite this the economic and political uncertainty in SA warrants a level of offshore investment to suit your risk profile.
Offshore gives you diversification through widening your investable universe to around 2500 shares versus 100 locally.
Studies show that a portfolio should have a minimum offshore investment of 20% to 30% for the long-term.
An offshore investment also provides a hedge against your daily spending as a large portion of items purchased are materially influenced by the level of the Rand.
How much should I invest offshore?
Firstly your risk profile should be assessed with a competent financial advisor.
Guidelines are as follows:
- A 20% minimum for long-term investors
- Pensioners and investors that need to fund a long-term Rand income a maximum of 35%
- Wealth investors without immediate income requirements could consider 100%.
At Investonline we recommend a range of 25% to 50% offshore investment depending on your risk profile and investment horizon. In addition, we recommend a strategy of increasing or reducing this exposure depending on our view of the offshore versus local investment value. For the five years to the end of 2015 we recommended an approximate 40% offshore investment which provided above average investment returns as the Rand weakened to 16.7. In January 2016 we recommended reducing offshore exposure to 25% due to our view that the Rand should strengthen. Despite the recent political upheavals we maintain this view.
Please click here to read the full article: Investing Offshore – Coronation 2016
