The two critical factors that should determine your offshore investment

27 Feb 2018

Jac de Wet, National Head of Sales, PSG Wealth

Offshore investment remains a hot topic of conversation, primarily for its diversification and access to sectors and securities that are not available locally. Before you take the offshore plunge, make sure you understand your motivation for doing so, as well as the associated implications of your choices. Offshore investment should be a strategic decision taken with your overall portfolio construction in mind, and as part of a carefully crafted, holistic plan.

Deciding between using an asset swap facility or investing directly offshore is one of the first choices you should make. An additional consideration is whether to make use of a share trading account or unit trust funds to house your investment. The best option (or combination of options) will be the one that is most suitable for your needs and that best complements your overall financial plan.

You should not view offshore investment primarily as a rand hedge. Even though this a big driver for many to invest offshore, investors already gain substantial rand hedge exposure through companies listed on the JSE. Keep in mind that since your expenses are priced in rands, and linked to South African inflation, moving too much of your portfolio offshore could present a number of pitfalls.

Key differences between asset swap and direct offshore investments

    Asset swap investment Direct offshore investment
Invest in
  • Rands
  • Foreign currency
  • Globally
  • To foreign currencies
  • Globally
  • To foreign currencies
  • None
  • R1m per year without tax clearance
  • R10m per year with tax clearance
Access to investment
  • Locally, in rands
  • Offshore, in foreign currency
Estate planning and tax
  • Simpler, as in some cases there is no need to consider foreign legislation.

Direct vs. asset swap

Asset swap investments are ideal if you don’t necessarily want to expatriate your capital, but rather want to take an investment view.

 Asset swap within an offshore share trading account

Investing in securities via an offshore share trading account gives you the flexibility to select your own shares. It is not necessary to obtain tax clearance if you trade using the asset swap mechanism, since the investment is made in rands and also paid out in rands. 

Asset swap within a unit trust fund structure

If you prefer to keep it simple, various rand-denominated offshore (feeder fund) unit trusts are available to invest in. Typically, this is also a cheaper and more easily accessible route when it comes to diversifying your portfolio offshore.

When investing in a feeder fund you are taking advantage of your chosen fund managers’ offshore allowance rather than using your personal offshore discretionary investment allowance. Generally, you can also invest smaller amounts than when investing directly offshore and you can invest via debit order.

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