A practical guide to offshore investments: Part 1

A look at options available to investors, how South Africans can access these and the impact product choice can have on offshore portfolios.

The world is becoming more interconnected every day – technological disruption, urbanisation and climate change are redefining the investment landscape, creating new opportunities for wealth generation. However, with more freedom of choice, also comes more confusion as investors seek to navigate this expanding investment landscape.

In this series on offshore investments, we will focus on which options are available to investors, how South Africans can access such offshore investment opportunities and the impact product choice can have on offshore portfolios.

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Most South African investors are familiar with the local investment options available to us with regards to unit trust funds, index-tracking funds and stockbroking portfolios. So how does this compare to what is available internationally?

Offshore unit trust

An offshore unit trust works the same as a local unit trust, where investors pool their funds together and purchase units in a portfolio consisting of a single or various underlying asset classes. The unit trusts you choose can either be actively / passively managed and the cost thereof varies.

Offshore exchange-traded funds

Similar to unit trusts are exchange-traded funds (commonly known as “ETFs”). The main difference is that ETFs are bought and sold via a stock exchange like a share. However, unlike a share, which focuses on one company, an ETF tracks a basket of shares, or an index, or a specific asset class and usually does so at a low cost.

Offshore exchange-traded notes

Exchange-traded notes (commonly known as “ETNs”) are exchange-traded debt instruments. The investor lends money to the issuer of the ETN (usually a bank) and then receives a return based on the movements in a specific benchmark. ETNs are also bought and sold via a stock exchange like a share but unlike ETFs, ETNs do not provide investors ownership of the securities in the index they track, ETNs merely provide the return that the index produces. That is why it is extremely important that the price of the ETN tracks the index closely to mitigate the possibility of tracking errors.

Offshore share portfolio

An offshore share portfolio works the same as a local share portfolio but instead of only having access to shares listed on the JSE, investors now have access to the full spectrum of globally listed companies.

Important to note, is that from a taxation and estate planning point of view, the above investment options can be expensive and/or ineffective if accessed directly.

In part two of our offshore investment series, we will look at the impact that product selection can make on your portfolio.

Should you wish to gain more insight into the offshore investment possibilities available, we encourage you to engage with our team of experts in structuring your own offshore investment.