You can invest offshore even if your name isn’t Oppenheimer. Sarah Bullen did the legwork
You are facing the year with a little nest egg of R10E000. It’s enough for a deposit on a small car, you could put it back into your fairly flaccid 32-day account, but you want to invest it offshore. And not just off into the ether of global or offshore markets, you have a hunch about a small firm in Bolivia that has developed a home liposuction kit.
The first question you may want to ask before ploughing your annual bonus into the Bolivian market is: why offshore, what’s wrong with local markets?
There is nothing wrong with local markets at all, in fact they are on a winning wicket at the moment and are looking to stay that way. But, explains African Harvest Fund manager Anthony Sedgwick, if your entire investment exposure is restricted to South African bonds, currency and equities, you are not going to come out smiling if markets do suddenly take a turn for the worse.
The ability to spread your money between various offshore equity, currency and bond markets offers you protection against fluctuations in the rand and in the local stock market. More than just offering protection, offshore investments mean that a knock in the rand can actually bring you good returns if you convert foreign investments back into rands.
The second answer to the question is, because you can.
So how do you go about investing offshore? The most accessible means for a small investor to buy offshore is through one of the thousands of small “corner brokers”, or through banks, insurance companies or an established and well-recognised asset manager. You can pick up the phone, walk into the branch or even simply fill out the applications on the Internet.
What these firms or brokerages will most likely sell you are offshore unit trusts – mutual funds in the United States – expertly managed by professionals. They may be sector specific, such as Old Mutual Global Technology Fund or Sage Internet Fund, but the majority of global unit trusts are funds of funds – which spreads your money between other unit trusts. Also on offer are wrap funds, a relatively new instrument that invests your money in a portfolio of unit trusts.
Paul Stewart, fund manager for Old Mutual Asset Management, explains that unit trusts are essentially a marketing tool to sell a portfolio to investors. The product can be broken up into smaller units, making it an ideal starting point for small investors. The best bet for the small investor is one of the banks which sets a fairly low entry limit on their offshore unit trusts. But for R10E000 you may have to do some fast- talking to convince most brokerages and private banks to touch your business
Offshore unit trusts, however, have hit a snag. Current exchange control regulations set a limit of 15% of the total assets of a management company allowed offshore, meaning that most of the offshore mutual funds have had to close their books to new investors. So while your personal allowance set by the Reserve Bank is R500 000, you may have trouble in finding an offshore unit trust that can accept your money and may have to settle for a local unit trust until they open again.
A second point to remember is that, while unit trusts are an accessible vehicle to move your investments offshore in, they do not allow you the latitude to move in on the Bolivian fat suction buzz. Very few brokers will take on the expense and direct dealing business for such a small amount.
Here the more accessible option of the small investor is online discount stockbrokers. Two of the most recognisable online trading sites offering offshore diversification are Tradek and E- data and first-time visitors will find the sites easily navigable and packed with information.
Pierre Cloete of Tradek.com, formerly MST- online, said that Tradek has dropped its minimum investment level from $10E000 to between $2E000 and $2E500 for clients wishing to trade offshore. The process of registering and trading, as Cloete explains it, seems a fairly simple one. Assuming you are not already sitting with an account in Grand Cayman, and that your tax affairs are in the clear, the online dealer will require you to deposit your little nest egg into its own accounts. The money will be moved into the firm’s offshore accounts subsidiary, which will allow you to buy and sell shares online, and use their local branches for settlement. “It is actually unbelievably easy,” Cloete says.
Online trading offers you the choice of buying into offshore unit trusts, but also offers investors the flexibility to manage their own portfolio. But there is a reason that portfolio management is a profession and not a hobby and very few people have the knowledge or time to manage the risks presented by local equity markets. Adding a foreign exchange exposure to that only compounds the degree of difficulty.
Gerry Anderson of the Financial Services Board advises investors finding discount brokers on the Internet to give the board a call before handing money over to them. If you have a sneaking doubt that there may be a 14-year-old kid in Kansas with the savvy of a Turkish carpet dealer and your savings in his back pocket, rather go with a name you know. You will, after all, be buying exactly the same share – just with a recognised dealer.
Another way of investing offshore is buying fixed assets such as gold -an island all of its own. R10E000 could get you about five Krugerrands, which you can hold on to and sell at your discretion. As gold is priced in dollars the conversion back into rands provides a hedge against currency fluctuations – but leaves you at the mercy of a volatile gold price.
With a two-bedroom flat in London going for around R1,5-million, for R10E000 you may be able to just secure the broom cupboard if you move fast.