Make Money Work Harder; Exploring Offshore Investment

 If you're worried about how the upcoming elections might impact the rand and the domestic economy, you might be thinking about investing abroad or boosting your international investments. Even if the events on May 29 don't bring any turmoil, financial experts advise that spreading your investments overseas is wise.

However, it's essential to be cautious: the fluctuating value of the rand against foreign currencies, like the dollar, should always be considered when venturing into offshore investments. This volatility can significantly increase the risk of an already unstable investment, such as a stock portfolio, turning it into an extremely unpredictable one.

South Africans have benefited hugely from offshore equity investments over the past year or so, on the back of both a falling rand and the stellar performance of the US tech giants, among others. A second word of caution: the “outperformance” of global equity portfolios cannot be expected to continue indefinitely.

There are many ways to invest offshore, but perhaps the simplest, cheapest and most accessible is an exchange traded fund (ETF) that tracks a global equity index. Note that in this type of product your investment is in rands. You are not transferring money outside the country.

I've conducted research on global equity Exchange-Traded Funds (ETFs) accessible through EasyEquities, Shyft, etfSA, and various online share platforms like Standard Bank, FNB, Absa, and Nedbank. These ETFs aren't limited to specific regions, but American firms predominate due to their significant market capitalization and worldwide presence. Additionally, I've included an index comprising reputable, established companies known for offering attractive dividends.

The ETFs are grouped according to the index they track. Performance figures for the indices are in US dollars, while ETF performance figures are in rands – all to the end of March 2024 unless otherwise specified. Return figures are annualized, giving the average annual return, in most cases over five years. Volatility is measured as a deviation from the mean – the higher the figure, the more volatile the index, and this does not take rand-dollar volatility into account. Total return (TR) performance is where dividends have been reinvested. All information is from the fact sheets of the funds and indices.

MSCI World Index

This is the most popular index for investors in global equities. It represents large and mid-cap shares across 23 developed-market countries with 1,465 constituents. Annualized TR performance over five years (USD): 12.6%, annualized volatility over five years (USD): 18.1%, top three countries: US 70.9%, Japan 6.1%, UK 3.8%, top three holdings: Microsoft 4.6%, Apple 3.9%, Nvidia 3.4%, top three sectors: Information technology 23.7%, financials 15.4%, healthcare 12.0%, local ETFs: 1nvest MSCI World Index Feeder ETF (annualized 18.3% in rands over five years), Satrix MSCI World Feeder ETF (18.3%), Sygnia Itrix MSCI World Index ETF (17.8%). Investment costs range from 0.48% to 0.72% per year. The fees of the Sygnia Itrix fund depend on the platform used and the amount invested.

S&P Global 1200 Index

This index represents the world’s largest investable companies. It captures about 70% of global market capitalization with 1,222 constituents in 30 countries. Annualized TR performance over five years (USD): 10.8%, annualized volatility over five years (USD): 17.8%, top three countries: US 62.1%, Japan 6.3%, UK 3.6%, top three holdings: Microsoft, Apple, Nvidia (percentages not specified), top three sectors: Information technology 24.0%, financials 15.5%, healthcare 11.6%, local ETF: FNB Global 1200 Equity Fund of Funds ETF. This fund holds a basket of offshore ETFs to simulate the composition of the S&P Global 1200. It has returned an annualized 17.5% in rands over five years. Investment cost is 0.41% per year.

MSCI All Country World Index

Combining the MSCI World Index and the MSCI Emerging Markets Index, this index represents 2,841 large- and mid-cap companies across 23 developed and 24 emerging-market countries. It represents about 85% of the investable equity universe. Annualized TR performance over five years (USD): 11.5%, volatility over five years (USD): 17.7%, top three countries: US 63.8%, Japan 5.5%, United Kingdom 3.4%, top three holdings: Microsoft 4.1%, Apple 3.5%, Nvidia 3.1%, top three sectors: Information technology 23.68%, financials 16.1%, healthcare 11.1%.

• Local ETF: Satrix MSCI ACWI Feeder ETF was launched in February this year. No performance figures are yet available. Investment cost is targeted at 0.35% per year.

FTSE Global All Cap Index

This index is diversified across large-, mid-, and small-cap companies: 71% large caps, 20% mid-caps, and 9% small caps. It comprises 10,126 stocks across 49 countries, including China but excluding Russia, and represents 98% of the global investable equity universe.

• Annualized TR performance over five years (USD): 11.1%

• Annualized volatility over five years (USD): 18.1%

• Top three countries: US 62.1%, Japan 6.3%, UK 3.6%

• Top three holdings: Microsoft 3.87%, Apple 3.09%, Nvidia 2.65%

• Top three sectors: Technology 25.0%, financials 14.3%, industrials 14.1%

• Local ETF: 10X Total World Stock Feeder ETF was launched in May 2021. Annualized return in rands, from inception to the end of March was 16.58%. Investment cost is 0.28% per year.

S&P Global Dividend Aristocrats Index

This index represents the highest dividend-yielding companies in the S&P Global Broad Market Index that have followed a policy of increasing or stable dividends for at least 10 consecutive years. The 97 constituents are weighted according to dividend yield, not market capitalization, and weightings are capped at 3%, with the number of stocks from each country capped at 20.

• Annualized TR performance over five years (USD): 3.8%

• Volatility over five years (USD): 19.0%

• Top three countries: US 24.1%, Canada 20.2%, Japan 13.5%

• Top three holdings: Altria Group, Highwoods Properties, Solvay (percentages not specified)

• Top three sectors: Financials 26.2%, Utilities 16.7%, real estate 11.3%

• Local ETF: 10X S&P Global Dividend Aristocrats ETF, which tracks a customized version, the S&P Global Dividend Aristocrats Blend Index. Annualized return in rands over five years was 12.9%. Investment cost is 0.52%