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hedging your investment bets
Alwyn van der Merwe
Director of Investments
Oct 27, 2017
Besides protecting against the not inconsiderable headwinds facing South Africa, international diversification provides an opportunity to gain exposure to growth across different markets as well as asset classes. Investing offshore may also allow you to benefit from opportunities not available locally, including certain high-quality assets.
A word of warning before you decide to ship out, however. In our experience, investors often attach too much value to the principle of reducing risk, and in the process all but ignore that most crucial of factors: price. There are two types of price you need to take cognisance of:
The bottom line is that you need to make sure that when you invest and diversify internationally, you’re not overpaying for the benefits associated with these investments.
Having said all this, what are the various options for increasing your global investment exposure? Remember, to invest offshore with SPW, you can use your offshore allowances (effectively around R11 million a year) to transfer your funds abroad, or you can make use of our asset swap capacity, or you can invest in rand-denominated options.
If you’re not restricted by the SA Reserve Bank or SA Revenue Service from holding direct offshore assets, and you don’t want to go the equity-only route, SPW has a multi-asset class offering: the SPW Global Balanced Fund. While asset allocation is done by our expert team in South Africa, the equities in this Dublin-based fund are selected by our SPW (UK) global equity team led by Pieter Fourie in London. The fixed interest component is run by our offshore fixed interest specialists headed up by Craig Veysey. The investment objective of the fund is to provide long-term capital growth.
What if you’re interested in global fixed income as part of your broader offshore exposure? Actuaries would argue that based on historic evidence, international bonds are the best risk diversifier in a multi-asset class portfolio. At SPW we can provide access to the Sanlam Strategic Bond Fund – a fund with an excellent track record – also run by Craig in the UK. This fund aims to provide monthly income generation with the potential for capital growth. It invests in best-value corporate and government bond opportunities from a broad global bond universe.
If it’s pure equity you’re after, SPW has a global equity offering, which can be accessed in three ways:
At SPW we’ll always recommend a long-term, active approach to investments. However, some of our clients may be interested in a more ‘passive’ offshore solution and require low-cost access to global markets in a single transaction. For this reason, we can help you to access offshore tracker funds on different indices – including the MSCI World, the MSCI Emerging Markets and the S&P 500.
What if you’re keen to diversify offshore, but want some level of capital protection during periods of market uncertainty and volatility – when downside risk is high? There are now several structured products in the market that provide a guaranteed pay-off while offering protection against loss – we can assist you with accessing certain of these products that meet our approval. Unlike traditional investments such as unit trusts and index trackers, these provide a level of principal protection against negative returns at maturity of the investment.
A final option for investors who can’t or don’t want to physically take funds out of South Africa is to invest in dual-listed or rand hedge companies on the JSE. For these clients, we can put together a customised portfolio consisting of high-quality companies that have a significant portion of their operations or income generated in foreign jurisdictions, such as British American Tobacco, Naspers and BHP Billiton. Remember that despite rand hedge stocks offering some protection against a depreciating rand, they don’t always protect investors and their share prices can be positively correlated with the rand.
In a nutshell, SPW has all the building blocks you’ll need to put together a stand-alone offshore solution or one that complements your South African investment portfolio. People invest offshore for different reasons, and every international investment strategy therefore starts with your own unique set of circumstances. Supported by our fiduciary and tax experts, your portfolio and wealth managers will work with you to design a customised offshore solution based on your personal financial circumstances, and your dreams and plans for the future.
Sanlam Private Wealth manages a comprehensive range of multi-asset (balanced) and equity portfolios across different risk categories.
Our team of world-class professionals can design a personalised offshore investment strategy to help diversify your portfolio.
Our customised Shariah portfolios combine our investment expertise with the wisdom of an independent Shariah board comprising senior Ulama.
We collaborate with third-party providers to offer collective investments, private equity, hedge funds and structured products.
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Sanlam Private Wealth (Pty) Ltd, registration number 2000/023234/07, is a licensed Financial Services Provider (FSP 37473), a registered Credit Provider (NCRCP1867) and a member of the Johannesburg Stock Exchange (‘SPW’).
All reasonable steps have been taken to ensure that the information on this website is accurate. The information does not constitute financial advice as contemplated in terms of FAIS. Professional financial advice should always be sought before making an investment decision.
Participation in Sanlam Private Wealth Portfolios is a medium to long-term investment. The value of portfolios is subject to fluctuation and past performance is not a guide to future performance. Calculations are based on a lump sum investment with gross income reinvested on the ex-dividend date. The net of fee calculation assumes a 1.15% annual management charge and total trading costs of 1% (both inclusive of VAT) on the actual portfolio turnover. Actual investment performance will differ based on the fees applicable, the actual investment date and the date of reinvestment of income. A schedule of fees and maximum commissions is available upon request.
COLLECTIVE INVESTMENT SCHEMES
The Sanlam Group is a full member of the Association for Savings and Investment SA. Collective investment schemes are generally medium to long-term investments. Past performance is not a guide to future performance, and the value of investments / units / unit trusts may go down as well as up. A schedule of fees and charges and maximum commissions is available on request from the manager, Sanlam Collective Investments (RF) Pty Ltd, a registered and approved manager in collective investment schemes in securities (‘Manager’).
Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. The manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in a portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of a portfolio and an investor will differ depending on the initial fees applicable, the actual investment date, date of reinvestment of income and dividend withholding tax. Forward pricing is used.
The performance of portfolios depend on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-dividend date. Portfolios may invest in other unit trusts which levy their own fees and may result is a higher fee structure for Sanlam Private Wealth’s portfolios.
All portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No. 45 of 2002. Funds may from time to time invest in foreign countries and may have risks regarding liquidity, the repatriation of funds, political and macroeconomic situations, foreign exchange, tax, settlement, and the availability of information. The manager may close any portfolio to new investors in order to ensure efficient management according to applicable mandates.
The management of portfolios may be outsourced to financial services providers authorised in terms of FAIS.
TREATING CUSTOMERS FAIRLY (TCF)
As a business, Sanlam Private Wealth is committed to the principles of TCF, practicing a specific business philosophy that is based on client-centricity and treating customers fairly. Clients can be confident that TCF is central to what Sanlam Private Wealth does and can be reassured that Sanlam Private Wealth has a holistic wealth management product offering that is tailored to clients’ needs, and service that is of a professional standard.