The first question one needs to ask is: do I want my money to be genuinely offshore?
If the answer is yes, then you have to get tax clearance from the South African Revenue Service (Sars) to physically take money offshore, which every individual is allowed to do, with a limit of R2-million.
According to Allan Gray this is an attractive option “for those who wish to have money offshore [in the true sense of the word] to meet potential foreign liabilities and costs”. You may, for example, want to buy a property offshore one day or educate your children abroad.
The main difference between this sort of offshore investment and a rand-based offshore investment is that any payment out of these assets is paid in a foreign currency outside South Africa.
The downside of such a move is that your tax affairs will be more complicated and your money is not as accessible, because it takes longer to invest and to withdraw.
Sanlam Private Investments portfolio manager Steve Mills says another reason some people prefer to have their money overseas is because they are worried about the political risks to the country.
If, however, you are just looking to diversify your portfolio by gaining access to foreign markets, there are a number of ways — where your money never actually leaves South African shores — in which to do so.
It comes down to a decision around doing it yourself, getting someone to actively manage your investments or buying passively managed index products.
According to Niels Penzhorn, director at Deutsche Securities SA, which manages the DB X-tracker range of exchange traded funds, the benefit of these products is that they can be bought and sold, like any other share, on the JSE, you can trade as many as you like and you are not bound by the R2-Âmillion limit. These are effectively passive investments that just track an index and are bought and sold in rands.
He says they are also attractive because of the low cost structures — the fees, according to Penzhorn, range between 60 basis points and 1% of the money invested.
The group offers five products that track the MSCI world index, Europe, the United Kingdom, the United States and Japan.
If you are looking for a more actively managed investment there are also a number of unit trusts available from the investment companies and banks that invest into international markets on your behalf.
According to Allan Gray, such unit trusts are good because relative to going through Sars, there is little administrative burden.
They often have much lower minimum investment amounts than their international equivalents and you can invest monthly through a debit order.
There are a few things to bear in mind: the range of funds and options available through local managers is more limited than what is available offshore. According to Allan Gray most providers add an additional layer of product fees over and above the fund management fee. This makes the true cost of investing less clear.
Many of the big investment houses offer similar products from an investment point of view but offer the choice of being fully offshore or invested in rands.
Asked if there is a significant difference in the cost involved in the two options, Allan Gray says, at least for its products, the cost structures for clients are the same.
The third option, only recently available to South Africans, allows investors to invest directly into certain overseas shares without the rigmarole of getting tax clearance from Sars.
This is the JSE’s new range of international single stock futures (IDX).
Listed on the JSE and with Deutsche Bank as a market maker, individuals can now invest directly into 23 US and European firms, such as Microsoft and Dutch Shell.
According to Magnus de Wet, derivative specialist at the JSE, IDX single stock futures provide investors with access to the world’s largest and most profitable companies as well as reducing risk within their portfolio.
He says: “When investing directly into a foreign market there are complicated securities laws, levies and taxes. If you go through a third party manager there are additional costly fees. The JSE’s international derivatives initiative eliminates all these obstacles.”