31 March 2022
OFFSHORE SUPPLEMENT
Investing offshore – your questions answered per annum as an individual or R20m per annum per household. Individuals may also use their R1m allowance. Investors can then choose to invest directly in funds or in shares abroad. Or you could, of course, invest through an endowment wrapper. The advantage here is that the company with which you’ve taken out that policy does all taxes payable within the wrapper. Tax rates on a wrapper are generally more favourable.
WAYNE SOROUR Head of Old Mutual International Sales & Distribution
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he current political and economic landscape in South Africa has led to a surge in interest in offshore investment from local investors. The decision to invest offshore is predominantly influenced by the search for better returns, in addition to stability and security of assets, says Wayne Sorour, head of Old Mutual International Distribution and Sales. However, navigating a complex environment of offshore investing can be challenging. The key motivation for an investor to invest offshore should be to have an appropriately diversified investment portfolio in pursuit of real capital growth at an acceptable level of risk. Sorour adds that it is estimated that between 65% and 80% of South African investors’ total wealth is exposed directly to the SA economy. The majority of South African investors may have too many eggs in one basket, says Sorour. Regardless of the economic and political climate in the country, from an investment perspective, developed and other emerging markets offer more depth and breadth relative to the local market. This allows an investor to diversify risk and to access far more investment opportunities for growth. Global investment markets present more opportunities to invest in long-term growth sectors such as technology and healthcare. Simply put, if you want to mitigate risk and grow your investments in real terms over the long term, you will do
well to adopt the mindset of a global investor. When investing offshore, you have two options: you could invest directly, in hard (foreign) currency such as the US dollar or the British pound; or through an indirect vehicle, such as a feeder fund or a unit trust, which uses an asset swap. Direct offshore investing Direct offshore investing involves converting rands to a hard currency and investing it abroad. Investors apply through the South African Revenue Service and the South African Reserve Bank for direct investment clearance. For direct investment, investors can apply for R10m
Indirect offshore investment Indirect offshore investment allows you to invest in offshore assets without the money physically leaving South Africa. When you decide to invest offshore indirectly, you need a mechanism to get this money abroad – referred to as an asset swap, it is essentially an investment manager’s offshore allowance. No tax clearance is needed; however, the investment performance and value are reported and paid out in rands in South Africa. Where do you invest? Offshore investing has the added complexity of a choice of thousands of companies and funds to invest in, says Sorour. This is where intimate knowledge and expertise of the offshore investment space plays a crucial role. Based on medium- to long-term investment horizons, money allocated to offshore investing invariably forms part of an investor’s discretionary investment amount. Due to the added complexity of geographical exposure to equity markets in the US, UK, EU or emerging markets, among many others, finding an adviser familiar with offshore investing is crucial, says Sorour.
Can value continue outperforming growth, or are growth shares moving into value territory? KYLE WALES Global Multi-fund Manager at Flagship Asset Management
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alue shares – those companies that are underappreciated and thus typically undervalued by most investors – managed to hold their own during a volatile start to the year
and when the rest of the market was losing ground. This has seen the value versus growth debate rear its head again. The MSCI ACWI Value Index and the MSCI ACWI Growth Index are good representations of how each of these camps are performing, and these show that the Value Index (flat for the year thus far) outperformed the Growth Index (down some 10% in January) by a wide margin. Value stocks, however, have underperformed their growth counterparts for many years. Thus the extent of the recent outperformance of value stocks may be exaggerated because it is calculated off a low base. Growth stocks on the right side of a disruptive world Part of the reason that value has outperformed growth has simply
been that we are living in a world of disruption, and growth stocks have been on the right side of those changes. If anything, the rate of change in the world is more likely to increase than decrease – and this is the type of environment that favours growth rather than value stocks. In the recent quarterly reporting cycle, the 20%+ sell-offs in Meta (Facebook) and Paypal have attracted much scrutiny. While some investors view this as a comeuppance for investors with a growth bent, a far more productive exercise is to interrogate whether investors are being offered attractive entry points into these shares after their recent sell-off. Meta now trades on a forward P/E multiple (after factoring in broker downgrades and deducting share remuneration expenses) of 20X, but it is still expected to grow earnings 17.7% in 2022. This is despite competitive threats from Tik-Tok. A compelling case can also be made for its earnings being low because all
the costs of building the ‘Metaverse’ are in this number, but little in the way of ‘Metaverse’ revenues. Any success Meta has in this space thus constitutes a free call option for long-term investors. In the case of Paypal, it has downgraded its revenue guidance for 2022 from 18% to 15-17%. Hardly a train smash, especially considering that management teams normally guide low. It mostly attributes this downgrade to macro factors like slower ecommerce growth (as the world re-opens post-pandemic) and the roll-off of Covid grants. Management asserts that its competitive position has never been stronger and has stuck to the guidance in its five-year plan of 20% per year (in year two). While Paypal certainly does not trade on a low multiple (26X on a forward basis), this contracts to 13X three years out based on management’s guidance. A rebound in the performance of value stocks was long overdue due to the massive underperformance of value stocks relative to growth stocks, but time will tell whether this outperformance can continue. Ironically, one of the largest obstacles to it continuing may actually be that post the recent falls in the share prices of so-called growth stocks, they may actually be moving into value territory.
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