Thanks in part to the rise of passive investment products, South Africans do not need offshore trading accounts or foreign currency to access overseas markets. In a recent webinar hosted by CoreShares and EasyEquities, we explained how local investors can buy into the global growth story via the JSE.

Considering that South Africa accounts for a mere 0.7% of the world’s stocks by market value, there is a strong argument to be made for geographic diversification.

Michelle Noth, Client Coverage Executive at CoreShares Asset Management, said during the webinar that offshore exposure can help investors to achieve their overall financial goals. Among other benefits, investing in other markets enhances portfolio diversification and reduces concentration risk.

The currency dynamic

The performance of an offshore investment is determined by the performance of the underlying asset as well as any changes in the exchange rate. This is a significant consideration for South African investors, given that the rand is one of the world’s most volatile currencies.

The good news is that the rand tends to depreciate over the long term against hard currencies – including the US dollar – primarily because of South Africa’s relatively high inflation rate.

Looking back, a 10-year investment in the US market would have been significantly boosted by the rand’s depreciation over that time.

This means that making an offshore allocation is particularly attractive for investors who have long time horizons.

The mechanics of JSE-listed offshore investments

To access foreign assets listed on the JSE, one needs a stockbroking account with EasyEquities or another provider.

Using deposited money, the account holder can then place a ‘buy’ instruction for a specific stock or an ETF such as the CoreShares S&P 500 ETF, which tracks the performance of the 500 biggest public companies in the US.

In addition to the CoreShares S&P 500 ETF, there are numerous other offshore-focused passive investment vehicles accessible via the JSE.

The CoreShares S&P Global Dividend Aristocrats ETF, for example, provides exposure to 346 companies that have a long history of paying stable or growing dividends. The fund consists of mature organisations – in both developed and emerging markets – that tend to be highly cash generative and have solid business models.

The CoreShares S&P Global Property ETF, meanwhile, tracks the performance of the world’s 40 biggest property companies. While the real estate sector has stumbled in recent years, particularly in South Africa, it has outperformed equities, bonds and cash over the past two decades and still offers attractive yields.

CoreShares firmly believes that index-tracking ETFs and other passive investment products act as important building blocks in portfolios. In addition to providing easy access to a basket of companies, they keep costs low and tend to outperform traditional actively managed funds in the long run.

In the five years to end-June 2020, In the US, 78% of actively managed funds underperformed the S&P 500 over the same time period. This trend can be seen across the globe and over different time periods.

This is why we believe that ETFs should be an important component of an offshore investment strategy.

Featuring Overview

Speaker

Michelle Noth

CoreShares
Michelle joined CoreShares in May 2019 as the Client Coverage Executive. Prior to this, she spent 13 years working in the Financial Services sector in London, where she specialised in ETFs and passive investment solutions (working at iShares and BNP Paribas among others). Michelle graduated with Honours in Business Science from the University of Cape Town in 2004, majoring in Finance and Financial Accounting. Later, she was admitted as a CFA Charterholder in 2010. Michelle is passionate about serving clients and creating cost-effective investment solutions that consistently achieve the best possible returns.

How to invest offshore via the JSE

Learning outcomes:

  • Unpack the mechanics of how JSE-listed offshore exposures are constructed
  • Look at some examples of US equities, Global Equities and Global Property funds available on the JSE
  • Discuss how much offshore exposure is optimal
  • Understand the difference between taking money offshore versus simply accessing offshore exposures listed on the JSE

Watch the 30-minute webinar followed by a recorded Q&A here:

Go to Episode 5 – What does portfolio construction mean?