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INVESTING OFFSHORE
WHY INVEST OFFSHORE?
The South African Reserve Bank has made it easier for South Africans to invest abroad over the last few years, and to accumulate a substantial offshore portfolio of assets. There are several reasons why investors should consider investing offshore. These include benefits like diversification, access to securities and sectors that are not available locally, and hedging against a weak rand.
Diversification Investing offshore allows you to spread your investment risk across different economies, regions, sectors and securities and to find more opportunities for clients. Locally, there are approximately 1 300 funds registered with the Financial Services Board (FSB). Globally, there are more than 200 000 different funds available. Similarly, there are approximately 350 stocks listed on the JSE’s main board, whereas there are roughly 60 000 equities listed globally. When one area of the portfolio may be under pressure from region specific risks, another area of the portfolio may be unaffected. This will support performance and reduce overall portfolio volatility. It also offers access to specialist sectors not available locally, for example biotechnology and global brands like Microsoft, Nestlé and Johnson & Johnson.
Local versus Offshore Funds
Stocks
Global 200 000 South Africa 1 300
Global 60 000 South Africa 300
Hedging against a weak rand Investing offshore provides protection from rand depreciation over time. But be careful not to try timing the market or react emotionally when taking money offshore. Exchange rate movements are notoriously difficult to predict. While the rand is likely to depreciate over the long-term against developed market currencies due to inflation rate differentials, it can buck this trend for long periods of time, especially as the exchange rate can be very volatile.
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Investing offshore allows you to spread your investment risk across different economies, regions, sectors and securities and to find more opportunities for clients.
PSG WEALTH’S OFFSHORE INVESTMENT OPTIONS
PSG Wealth has a full suite of offshore unit trusts, ranging from more conservative products focused on outperforming cash to more aggressive equity-linked unit trusts. These funds are available in US dollars, British pounds, and in South African rands via feeder fund (FF) structures. The feeder funds access the underlying funds denominated in foreign currency. They thus offer all the diversification benefits and offer currency hedging, but clients do not have to go through the administrative burden of acquiring foreign currency. PSG Wealth remains well-positioned to provide the necessary offshore capacity to its clients via feeder funds.
Explanations of each global fund of funds The PSG Wealth Global Preserver Fund of Funds is a foreign multi-asset stable fund which invests in an internationally diversified portfolio of managers following a multi-asset cautious equity allocation approach. Cautious allocation funds have a mandate to invest in a range of asset types. The equity component does not exceed 35% in the normal running of the fund. The manager’s investment approach will be focused on debt obligations of governments, international organisations and corporations or institutions of high credit standing. The PSG Wealth Global Moderate Fund of Funds is a foreign balanced fund which invests in an internationally diversified portfolio of managers following a multi-asset moderate equity allocation approach. Moderate allocation funds have a mandate to invest in a range of asset types.
The equity component will usually be between 35% to 65% in the normal running of the fund. The manager’s investment approach will be focused on equities but subject to the fund rules there will be no limit on the asset classes in which the manager may invest. If the manager considers that circumstances warrant it, the portfolio may be invested predominantly or entirely in bond funds or cash. The PSG Wealth Global Flexible Fund of Funds is a foreign fund which invests in an internationally diversified portfolio of managers following an unconstrained multi-asset flexible allocation approach. The equity component will be between 0% and 100% in the normal running of the fund. The manager’s investment approach will be focused on equities but subject to the fund rules there will be no limit on the asset classes in which the manager may invest. If the manager considers that circumstances warrant it, the portfolio may be invested predominantly or entirely in bond funds or cash. The PSG Wealth Global Creator Fund of Funds is an offshore equity-only portfolio aimed at aggressive longterm growth. The fund is well-diversified across sectors and securities to mitigate the effects of short-term volatility. The average equity exposure of this Fund of Funds is 95%, with a maximum net equity exposure of 100%.
PSG Wealth global fund range PSG Wealth Global Creator FoF (USD) PSG Wealth Global Flexible FoF (USD/GBP)
Return
PSG Wealth Global Moderate FoF (USD) PSG Wealth Global Preserver FoF (USD/GBP)
PSG Wealth Global Preserver FF (ZAR)
PSG Wealth Global Moderate FF (ZAR)
PSG Wealth Global Flexible FF (ZAR)
PSG Wealth Global Creator FF (ZAR)
Risk The PSG Wealth Global Flexible FF was officially launched on 8 March 2018.
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PSG WEALTH’S OFFSHORE INVESTMENT OPTIONS
PSG Wealth Global Preserver Fund of Funds (USD/GBP) Investment objective
Investor profile
The objectives of the portfolio are to provide relative capital stability and to maximise returns for investors through active management of an internationally diversified portfolio of multi-asset income investments. Investments are in real return collective investment schemes established, recognised or regulated in any approved country and assets in liquid form.
• Investors seeking a global multi-asset portfolio which provides relative capital stability while generating longterm wealth; • Investors should be comfortable with market and currency fluctuations i.e. short-term volatility.
The emphasis of the manager’s investment approach will be on debt obligations of governments, international organisations and corporations or financial institutions of high credit standing.
PSG Wealth Global Moderate Fund of Funds (USD) Investment objective
Investor profile
The objective of the portfolio is to maximise capital and income returns through active management of an internationally diversified portfolio of multi-asset collective investment schemes established, recognised or regulated in any approved country and assets in liquid form.
• Investors seeking a balanced global multi-asset portfolio aiming to generate long-term wealth; • Investors should be comfortable with market and currency fluctuations i.e. short-term volatility.
The portfolio may be constructed with multiple offshore asset classes according to an amalgamated house view for moderate investors.
PSG Wealth Global Flexible Fund of Funds (USD/GBP) Investment objective
Investor profile
The objective of the portfolio is to maximise capital returns through active management of an internationally diversified portfolio of unconstrained multi-asset collective investment schemes established, recognised or regulated in any approved country and assets in liquid form.
• Investors seeking an unconstrained global multi-asset portfolio aiming to generate long-term wealth; • Investors should be comfortable with market and currency fluctuations, i.e. short-term volatility.
PSG Wealth Global Creator Fund of Funds (USD)
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Investment objective
Investor profile
The objective of the portfolio is to maximise capital returns through active management of an internationally diversified portfolio of equity-based collective investment schemes established, recognised or regulated in any approved country and assets in liquid form. The emphasis of the manager’s investment approach will be on equities.
• Investors seeking a global equity portfolio aiming to generate long-term wealth; • Investors should be comfortable with market and currency fluctuations, i.e. short-term volatility.
VALUE OF ACTIVELY MANAGED SOLUTIONS
The PSG Wealth research and investment team applies their proven process to a universe of more than 18 000 funds. These are reduced to about 300 using an initial quality screening
process. However, the real value lies in their ability to achieve exceptional performance by selecting nine funds from this potential universe of 300 funds.
PSG Wealth global fund range
Fund selection skill to create the PSG Wealth Global Creator FoF 300 potential offshore funds, starting with a universe of 18 000.
9 funds
Promote and optimise responsibility
Select best of breed
Managers with different investment styles
Deciding between an asset swap or direct offshore investment As indicated earlier, you can access the diversification benefits of the global solutions funds either via offshore currency or via rands. Asset swap investments are ideal if you don’t necessarily want to expatriate your capital, but rather want to take an investment view. If part of your bigger plan is however to access your money offshore – for example, if you want to emigrate, live overseas part of the year, or if you anticipate your children will study abroad – you may want to consider the direct offshore route.
This involves physically taking money out of South Africa, which needs to happen via an authorised dealer. Once the money is physically out of South Africa, it can be invested in offshore markets in the foreign currency by using the offshore capital investment allowance granted to the authorised dealer by National Treasury and the South African Revenue Service (SARS).
The best option (or combination of options) will be the one that is most suitable for your needs and that best complements your overall plan.
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GENERAL FEATURES OF ASSET SWAP VERSUS DIRECT OFFSHORE INVESTMENT Asset swap (Feeder Fund considerations) An asset swap account allows a range of entities (for example individuals, trusts, companies, partnerships and joint account holders) to invest offshore without making use of their foreign allowance. Instead, the investor uses the asset swap capacity of the service provider.
Advantages
Disadvantages
• No SARB approval required • No foreign allowance is used • Available within 48 hours • Investment can be made within a South African trust • No probate or executor issues Under the jurisdiction of the SARB Limited fund choice
Direct offshore South Africans are allowed to invest up to R10m offshore every year, subject to tax clearance from the SARB, and up to R1m a year without tax clearance, although the investment needs to be registered with the SARB.
No South African jurisdiction or authority over the assets
• Involves more paperwork • Investments above R10m p.a. are subject to tax clearance • Potential probate and inheritance tax issues
Investment allowance
No limitation applicable
The offshore investment allowance for individuals was increased to R10m per year.
Access
Locally, in rand only
The offshore investment allowance for individuals is R10m per year.
How to invest
Asset swap funds are available on all major local investment platforms. Our preferred platforms in this regard are PSG, Allan Gray, Investec, Momentum, and Glacier.
Direct offshore unit trust investments can be made through a number of investment platforms.
Available investment vehicles
Shares and unit trusts
Shares and unit trusts
Tax implications
CGT will be payable when the units/shares are disposed of, at your effective tax rate.
CGT is determined in the foreign currency before the gain or loss is converted into rands. The result is that currency movements over the investment term has no impact on CGT.
Estate implications
Simpler, as in some cases there is no need to consider foreign legislation
Consideration must be given to foreign legislation. Specialist fiduciary and tax planning services may be required.
How to invest Voluntary unit trust investments can be made directly offshore through the PSG management company. The management company can assist you in converting local currency, obtaining the appropriate clearances and placing the investments. Investors can also invest in our Feeder Fund (FF) range which feeds 100% into the appropriate FoF. PSG Wealth solution funds are available exclusively via your PSG Wealth adviser.
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Collective Investment Schemes in Securities (CIS) are generally medium- to long-term investments. The value of participatory interests (units) or the investment may go down as well as up and past performance is not a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending. The Funds may borrow up to 10% of their market value to bridge insufficient liquidity. The portfolios may be capped at any time in order for them to be managed in accordance with their mandate. Prices are published daily and available on the website www.psg. co.za/asset-management and in the daily newspapers. Unit trust prices are calculated on a net asset value basis, which is the total market value of all assets in the Fund including any income accruals and less any permissible deductions from the Fund, divided by the number of units in issue. Fluctuations or movements in the exchange rates may cause the value of underlying international investments to go up or down. Where foreign securities are included in a portfolio, the portfolio is exposed to risks such as potential constraints on liquidity and the repatriation of funds, macroeconomic, political, foreign exchange, tax, settlement and potential limitations on the availability of market information. Fees: A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments (RF) Limited. Commission and incentives may be paid and, if so, are included in the overall costs. Forward pricing is used. Performance: Performance is calculated for the portfolio and individual investor performance may differ as a result thereof. Annualised performances show longer term performance rescaled over a 12-month period. Different classes of participatory interest can apply to these portfolios and are subject to different fees, charges and possibly dividend withholding tax and will thus have differing performances. All performance data for a lump sum, net of fees, includes income and assumes reinvestment of income on a NAV-NAV basis. Individual performance may differ as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. The portfolio is valued at 15h00 daily. Income distributions are net of any applicable taxes. Source of performance: Figures quoted are from I-Net, Stats SA, SARB, © 2018 Morningstar. Fund of Funds: A Fund of Funds portfolio only invests in portfolios of other collective investment schemes, which levy their own charges, which could result in a higher fee structure for Fund of Funds portfolios. Feeder Funds: A Feeder Fund is a portfolio which, apart from assets in liquid form, invests in a single portfolio of a collective investment scheme, which levies its own charges and which could result in a higher fee structure for the feeder fund. Additional information: Additional information is available free of charge on the website and may include the Minimum Disclosure Documents, publications, brochures, application forms and annual reports. Company details: PSG Collective Investments (RF) Limited is registered as a CIS Manager with the Financial Services Board, and a member of the Association for Savings and Investment South Africa (ASISA) through its holding company PSG Konsult Limited. The management of the PSG Wealth Fund of Funds portfolios is delegated to PSG MultiManagement (Pty) Ltd, both an authorised Financial Services Providers under the Financial Advisory and Intermediary Services Act 2002. PSG MultiManagement (Pty) Ltd (FSP 44306) and PSG Collective Investments (RF) Limited are subsidiaries of PSG Konsult Limited. Conflict of Interest Disclosure: The Funds may from time to time invest in a portfolio managed by a related party. PSG Collective Investments (RF) Limited or the fund manager may negotiate a discount in fees charged by the underlying portfolio. All discounts negotiated are re-invested in the Fund for the benefit of the investor. Neither PSG Collective Investments (RF) Limited nor the fund manager retains any portion of such discount for their own accounts. The fund manager may use the securities trading services of a related party, PSG Securities Ltd. PSG Collective Investments (RF) Limited does not provide any guarantee either with respect to the capital or the return of the portfolio. Version: March 2018
