2 minute read
Offshore investing as a diversifier
One of the most effective ways to manage risk in an investment portfolio is through diversification, which has been called the ‘free lunch’ when it comes to risk management. Rather than investing in one singular stock, sector, asset class or geography, diversification is about spreading the risk across all of these. Investors need to have different types of investments in their portfolios, so that when the inevitable down days come for some, they can be offset by others that are moving in the opposite direction. The best way to manage risk in your portfolio is to have diverse investments and assets – in other words, a broad range – spread along the investment spectrum.
Investing can be scary because it is your hard-earned money at stake. But it is relatively simple to manage investment risk within a whole investment portfolio context using diversification. Ultimately, no one knows what the future holds, and what works in one year may not necessarily work in the next. Rather than betting on one single outcome, spreading the risk across different assets ensures you always have something in your portfolio that is working on your behalf.
However, investors need to be careful of overdiversifying in a way that doesn’t improve the risk and return characteristics of their portfolio. We often see investors who’ve put together too many funds that are all doing the same thing and not bringing anything different to the mix. In the investment world, we sometimes call that ‘diworsification’, because it actually worsens things.
Offshore investing – a form of diversification
In the context of South African portfolio management, investing offshore is classified as ‘geographic diversification’. With South Africa making up only 0.5% of the world markets, diversifying offshore gives investors the opportunity to invest their money in various markets – developed, emerging, frontier and in stocks that may not be available on the Johannesburg Stock Exchange (JSE).
Offshore investing can sound unattainable to the average South African. However, there are many ways for South African investors to invest offshore. One such way could be through buying a unit trust or investing in a balanced fund that has offshore exposure.
At Old Mutual Multi-Managers, diversification is one of the cornerstones of our investment philosophy. In addition to diversifying our portfolios at stock, sector and asset class levels, we also diversify at an asset manager level. Here we allocate money to investment managers, both locally and globally, that we believe are best suited to manage this money on our clients’ behalf.
Old Mutual Multi-Managers has recently launched a range of offshore funds, which are currently open to all South African investors via the Old Mutual International (OMI) platform. These funds offer pure equity, aggressive balanced and moderate balanced options. In line with our investment philosophy, the offshore range of funds aim to achieve their investment objectives through diversification at manager and asset class level. The asset classes the funds have exposure to are: global equity (developed and emerging markets), global cash, global fixed income and global property.
BY MICHAEL DODD Head: Equities, Old Mutual Multi-Managers
