ADRIAAN PASK: How much should you invest offshore?

Investing abroad is not only about looking at different asset classes and securities beyond your home turf. It’s also about what is efficient and suitable from a wealth management perspective, and about executing a specific advice strategy. 

How will wealth managers (and their clients) harvest the best returns from the options available? How will their decisions and behaviour influence the outcome? Investors interact with their investments, which means there are also other risks to consider. 

Working in the wealth management industry, building investment solutions and running portfolios, places me in a good position to answer some of these questions. And in the challenging local context, it’s understandable that investors are increasingly asking: how much should I invest offshore? 

Regrettably, the typical response from most DIY investors is to base this decision, often unintentionally, on emotion. Media headlines are flooded with political scandals and news of crime and corruption. That’s often enough information for most of these investors. No prizes for guessing what their views will be.

Asset managers bring objectivity and science to the debate. Their research is based on facts and combines top-down factors such as policy and economic conditions with bottom-up analysis on sectors and specific securities. The aim is to balance prospective returns against risks. 

They also consider the way a share portfolio is built to quantify the most suitable mix of local and offshore assets. Generating the most efficient level of return for the risk taken is a key focus.

Currency volatility can be offset with government bond exposure, for example. Access to sectors overseas can fill gaps in a South Africa-only security portfolio.

You get the drift: there’s a great deal to think about when building a portfolio where volatility is sufficiently counterbalanced by higher returns.

All this work is valuable, and much better than making purely emotional decisions, but it’s still incomplete. 

Additional factors need consideration. How will the decision affect your estate planning? What are the tax considerations at death? Do you plan to emigrate? What proportion of your wealth is earmarked to take care of local liabilities or income requirements? No fund manager can universally address these questions. Each client is different. 

This encapsulates my frustration on this recurring topic, and, in some cases, the strong prescriptive views that are published without any mention that clients’ circumstances are likely to differ. At a minimum, a view on the optimal allocation should be accompanied by such a stipulation.

One should not make a decision at all until all the factors that can have a material impact on the outcome have been carefully considered.

Those making decisions purely on sentiment are obviously on the wrong path. Those who consider research are on a much stronger footing, but they don’t entirely answer the question. It is not just about asset allocation and risks, or even prospective returns. It’s about goals and needs, and how to go about meeting them.

The best advice I have is still the most obvious: speak to a trusted and qualified financial adviser who can consider all your needs and goals and allocate your assets accordingly. 

* Pask is chief investment officer at PSG Wealth