Chris Visser The biggest challenge facing the average investor is to structure a portfolio that affords the best possible returns for the lowest possible risk. Evidence published in the April 1998 issue of Insurance and Investments indicated that an investor with an offshore element in his portfolio can earn the same return as available domestically, for less risk – or more for the same risk. The article said: “From research done by the Union Bank of Switzerland for the period January 1981 to March 1995 on the effect of combining varying percentages of the FTA world index with the FTA South African index, it became evident that you would get the maximum return for the least amount of risk by putting 60% of your equity money into SA shares and 40% into world equities. “If you had invested in SA equities only, your return would have been 20,8% per annum, with a standard deviation of 24. “By putting 40% into overseas funds, your return would have been higher, at 23% per annum, but equally important, your risk would have been much less, with a standard deviation of 19.” But although you can invest your full R750E000 foreign exchange allowance directly in an offshore vehicle, you need approval from the tax authorities and the Reserve Bank must be notified. There is also a bewildering number of investment opportunities to choose from. Making an informed decision is tough. Another problem is that many foreign funds prescribe high minimum investments. These may well be beyond the scope of average investors looking to establish a balanced investment portfolio. Costs, too, may be an issue, along with monitoring the investment and assessing its performance. This is where an international fund of funds comes in. If rand-based, it provides convenient, cost-effective and simple access to multiple offshore funds (and thus multiple international markets) through a single investment product purchased in rands. There is thus no exchange control approval required.
What’s more, the fund has lower minimum investment levels than an offshore fund and allows for debit-order investments. At the same time, the fund’s diversified nature provides a good degree of risk management. Chris Visser is a Senior Portfolio Manager and Head of Research at Metropolitan Asset Manager