How much offshore is enough?

Offshore investing is a key financial planning requirement for all investors seeking to protect and grow their wealth.

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Old Mutual Wealth _Offshore Investment advice

While investing is certainly rewarding it can be complex. You will have questions along the way and Old Mutual Wealth is here to help you find the answers. As we partner with you on your investment journey, we’ve asked ourselves some hard questions. So that you don’t have to.

The recent change in regulations on retirement funds allowing up to 45% direct global exposure, from 30% previously, raises the question: should you take more offshore and if so, how much?

Offshore markets offer more depth relative to local markets, which allows investors to better diversify risk and access more investment opportunities for growth.

Even before this regulatory change, our modelling suggested that, on a long-term view, a balanced fund should have around 40% global exposure. This change will therefore allow investors to get closer to an optimal allocation. However, the optimal allocation really depends on the individual’s goals, risk appetite and total portfolio and where the valuation opportunities are.

What are the key reasons for investing offshore?

Diversification

Although offshore investing is a key financial planning requirement for all investors seeking to protect and grow their wealth, it is estimated that between 65% and 80% of South African investors’ total wealth is exposed directly to the local economy. This means that the majority of South African investors are not sufficiently diversified. They are overexposed to the domestic market, largely because it is what they know best.

Opportunity

A typical South African investor will have a pension fund with their employer, probably own a property and their primary source of income will most likely be derived from the local economy. From a pure diversification point of view, it therefore makes sense to have decent offshore exposure, especially in discretionary portfolios where there are no regulatory limits.

Profile photo of Roland Gräbe, Head of Old Mutual Wealth Tailored Fund Portfolios
Roland Gräbe, Head of Old Mutual Wealth Tailored Fund Portfolios

Offshore markets offer more depth relative to local markets, which allows investors to better diversify risk and access more investment opportunities for growth. There is also substantial global exposure on the JSE, with more than half of revenues of JSE-listed companies generated outside South Africa.

Is there an optimal time to invest offshore?

Our currency also plays a big role. Investors who draw an income from their portfolio are potentially most exposed to currency volatility. South African interest rates are consistently higher than in the US or Europe. Even when currency movements are considered, it makes sense to rely on local income-producing assets while getting global exposure in the long-term growth portion of a portfolio.  

Finally, it doesn’t make much sense to sell cheap domestic investments to buy relatively expensive offshore assets, or vice versa. Currently, the former is the case with local bonds, equities, and property cheaper than counterparts in developed countries. Therefore, current market conditions do not necessarily call for moving to the full 45% direct offshore exposure.   

We believe that offshore investing is a key financial planning requirement for all investors seeking to protect and grow their wealth. Our locally-based offshore specialists can provide you with access to a wide range of international assets and investment funds from some of the biggest and most reputable portfolio managers in the world.  

For answers to more hard questions, click here.


Old Mutual Wealth is an advice-led wealth management business, aimed at providing financial planners and their clients with a full suite of industry-leading strategies and services. For more information, please visit our website.

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