OFFSHORE INVESTMENTS
OFFSHORE INVESTMENTS INVESTMENT has the iciently advice a range tionary e DFM, ng to a pliance. re that istently s), that stment ve due used. o many dvisors d thrive at IFAs iness to . tion. We ent IFAs nges in R, and be the added river. quality r in the stment ns with that is eeds rtfolio stment fective fferent various e given h Africa. latively osing a ht DFM mative, Rest of world developed equities Around 35% of listed equity then sits within Europe, UK and Japan. This is a more diversified pool of investments compared with the US, given the geographical spread of companies and the fact that multiple governments play a role in impacting the prospects of each market. Europe is still rather old-world (consumer goods, financial services and all the oil companies – Total, BP, Shell). The UK is largely a global market, with a minority of revenues sourced domestically, and many of its listings based on commodity companies, much like South Africa. Japan was the equity powerhouse in the ’80s with the advent of the personal computer and consumer electronics but has faded over time. Today it gives us motor manufacturing (Toyota, Mitsubishi and Honda) and Sony among others. markets given the complexity as well as the need to resource significant teams to cover this disparate universe of shares. This is one of the biases we consider when looking at client portfolios. Frontier markets A recently termed market referring to lesser developed, prospective emerging markets. Current exposure is concentrated across Argentina, Kuwait, Vietnam and Nigeria where 60% of all listed shares are either in financial services or telecommunications – the frontier markets provide high-growth opportunities because they still have much to achieve so returns to investors need to be commensurately high to offset the investment risks of politics, liquidity and governance. Smaller companies Some companies are small for a reason and will stay that way, but others are the “large caps of the future”. These shares are your typical high-growth companies because they tend to be rolling out new, disruptive services to the market. Many of the current-day disruptors are technology-based, but this can cover any industry globally. This is another market often underinvested by asset long-term business partner to an advisory • Global and local portfolio managers construction due to the different mindset required and additional business. Emerging markets capabilities. resources required. This asset class also tends to be quite US-heavy These We believe are markets that the defined two most as “developing” important • ie The where skill there and relevant are due experience to the focus of the on innovation which enjoys substantial support factors reasonable that advisors infrastructure need to and consider governance when to support core investment growth and team. in that market. choosing where the a standard DFM are: of living is in ascendance, • currently The DFMs holding back-office compatibility with • around Understand 15% of the world unique equity value exposure. proposition These are the generally advisor’s seen current Listed processes. property as of high-growth the DFM given sources how of return different as the underlying • The scale economies of the business. Unlike locally, where property tends to be quite homogenous are various developing DFMs’ at a offerings higher rate are, than and more how mature • The markets fee structures. like the US. this While value this proposition is the theory, complements the reality has the been somewhat more – meaning that most of our investment options are bundled property companies across commercial, retail and industrial mixed advice in process. many cases. With political volatility In and our various opinion, social DFMs do options have an – important global counterparts are considerably more specialised. • conflicts, Make sure emerging that there markets is a are good not always culture a one-way role to bet. play They in are helping Companies advisors can have to a specific focus (eg data centres fast replacing also and beholden philosophy to the fit demand between created the advisor by the developed professionalise markets. and grow retail their shops businesses; due to online shopping), or a regional focus (for China, and the for DFM. instance, could be referred to as the ensure manufacturer consistent of investment instance, outcomes; a property share that only invests in B-grade London Meeting the Western these world. considerations Looking ahead will decrease less so, but improve certainly communication looking commercial to clients property). and This provides substantial diversification the backwards. probability Countries of “buyer’s include remorse” BRICS (Brazil, from Russia, enable India, advisors China and to focus opportunity on their core for role investors compared to history. an South advisor Africa) who as well is as getting South Korea, something Taiwan and of giving Mexico. comprehensive All financial of this advice results in tens of thousands of listed shares in which different Emerging from markets what they are expected, increasingly and dominated to clients. by the rise ensures of China, that which when now differences accounts of opinion for over emerge, 30% of all there listed is emerging common market ground equity. and respect And within between this, the a parties huge to bias allow towards for a compromise technology via that Tencent does not (the disadvantage source of the Naspers’ client. success), Baidu and Alibaba – the Chinese Key factors equivalent to investigate of Facebook, when carrying Google out and your Amazon due diligence respectively. on the It DFM is becoming options include: difficult to avoid a Chinese tech bias inside • an Whether emerging the markets DFM is independent portfolio. Other and sectors how important providing opportunity independence emerging is to the markets advisor. include commodity producers, • large The growing investment consumer philosophy services based and on growing performance middle history classes, of and the DFM. the financial • services The depth needed of the to fund DFM’s this global growth. and local Many to invest globally. In the main markets, this is narrowed down to around 2 500 to 3 000 shares, once liquidity has been factored in. This range of diversification is the primary benefit to local investors – not being overexposed to a few shares, singular governments, local currency or other risks such as terrorism, corporate fraud or the decline of an industry. For equity investing going forward, it pays to think globally as part of a client’s portfolio, and while there are equivalent risks globally to those which we face in South Africa, we are less exposed to any individual event permanently impacting our portfolios and the achievement of longerterm asset research managers capabilities. avoid investing in emerging Ian Jones, CEO, Fundhouse objectives. 22 www.bluechipdigital.co.za www.bluechipjournal.co.za 23
OFFSHORE 2021 THE REAL REASON YOU SHOULD BE INVESTING OFFSHORE KEY CONSIDERATIONS WHEN INVESTING OFFSHORE WHEN DIRECT INVESTING ISN’T AN OPTION EMERGING AND DEVELOPED MARKETS – A MIX OF RISK AND REWARD FINANCIAL EMIGRATION – DO THE COSTS AND COMPLEXITIES WARRANT THE BENEFITS? IT PAYS TO PLAN IF YOU’RE LOOKING OFFSHORE
