Category Investments

Get offshore exposure with a local unit trust

10 July 2018 Elize Botha, Old Mutual
Elize Botha, Managing Director of Old Mutual Unit Trusts.

Elize Botha, Managing Director of Old Mutual Unit Trusts.

Given that South Africa’s Gross Domestic Product (GDP) represents only 1% of the world economy, exposing your investment portfolio to international markets offers local investors a world of growth opportunities and reduces the concentration risk that comes with investing in one market.

However, choosing an affordable offshore investment vehicle can be a challenge. This is according to Elize Botha, Managing Director of Old Mutual Unit Trusts, who believes that South African investors can mitigate many of the complexities of offshore investing, including regulation, differing terminology, and the sheer magnitude of options, by merely investing in a locally registered unit trust with exposure to offshore assets.

"The purest form of investing offshore is physically moving your money out of South Africa by converting rands to a foreign currency and reinvesting it in an international market," says Botha. “However, this process often only tends to benefit wealthier investors – those prepared to deal with the extra complexity of buying foreign currency and with the resources to afford the higher minimum investment amounts required."

Investing in a locally registered rand-denominated unit trust, on the other hand, offers broad-based exposure to global growth assets such as shares and international property, says Botha. “This option offers investors simplicity, a wider choice of asset classes, flexibility and cost efficiency, without worrying about getting a tax clearance certificate from SARS (South African Revenue Service).”

She says that local investors can benefit even further by using their tax-free allowance to invest in a local tax-free unit trust exposed to global markets. "Except for performance fee funds -those unit trusts that charge additional fees for meeting specific targets - multiple award-winning funds are available tax-free,” says Botha. “This means investors will pay no capital gains tax on the growth of contributions to the maximum of a lifetime limit of R500 000, regardless of the fund’s performance, which is a great incentive for first-time investors.”

Botha also suggests that local investors consider their options before taking money out of South Africa with the intention of banking it in an international savings account. “Currently, global interest rates are so low that money saved in an international bank account will hardly earn any return,” says Botha. “While cash – whether dollars, euros or rands - is ideal for short-term financial goals, it is seldom able to deliver real growth over the long-term in order to outpace inflation when saved in a fixed deposit or bank account.”

Botha offers the following four tips to help investors when selecting a local unit trust with international exposure:

1. Choose a unit trust that is appropriate to your risk profile

When selecting a fund, investors need to ask themselves what they are trying to achieve and by when they want to achieve their investment goal. Knowing your time horizon is critical when establishing what level of volatility you can afford.

2. Establish how much money you can put away each month

One of the most significant barriers to generating wealth is not budgeting a defined amount of money to invest each month. One way is to use the simple 50/30/20 budgeting rule: 50% of your salary should go to your living expenses, 30% towards flexible spending, and 20% should go towards investments.

3. Stick to your financial plan

Moving money offshore should never be the result of a reaction to short-term changes in the local environment. Taking money offshore, especially during times of uncertainty, when the rand is often at its weakest, can result in severe investment losses. Always stick to your financial plan, no matter the situation.

4. Pick the right partner

Investors looking to diversify their portfolio by adding an international component should seek out the right partner with a proven track record in global markets. Whether you are considering a multi-asset offshore fund - for those goals with shorter time investment horizons - or an offshore equity fund -such as the award winning Old Mutual Global Equity Fund suited for long-term objectives - there is a unit trust for every goal.

Quick Polls


How confident are you that insurers treat policyholders fairly, according to the Treating Customers Fairly (TCF) principles?


Very confident, insurers prioritise fair treatment
Somewhat confident, but improvements are needed
Not confident, there are significant issues with fair treatment
fanews magazine
FAnews June 2024 Get the latest issue of FAnews

This month's headlines

Understanding prescription in claims for professional negligence
Climate change… the single biggest risk facing insurers
Insuring the unpredictable: 2024 global election risks
Financial advice crucial as clients’ Life policy premiums rise sharply
Guiding clients through the Two-Pot Retirement System
There is diversification, and true diversification – choose wisely
Decoding the shift in investment patterns
Subscribe now