Allan Gray zooms in on affordable offshore investing options
Many potential investors are discouraged from offshore investing due to various perceptions that exist around it, ranging from high investment minima to weak returns. Also, too many Namibians are still shell-shocked from 2001 when millions of Namibia dollar were invested offshore at N$20 to the US dollar only for the local currency to bounce back with meaning. So why then should any Namibian investor even consider an offshore investment?
Diversifying one’s investments are one of the fundamental principles of investing and investing offshore is but one way to do so. While many Namibian investors might be comfortable with only having exposure to a handful of Namibian shares listed on the local bourse (NSX) and those listed on the Johannesburg Stock Exchange (JSE), it is worthwhile asking oneself whether this constitutes sufficient diversification of one’s investment portfolio. The JSE might be the largest exchange on our continent, but why should you limit your savings to South African and Namibian companies (which comprise less than 1% of the investable shares globally) if you can also enjoy exposure to good quality international companies?
With the Namibia Dollar pegged to the volatile Rand, Namibian investors are just as exposed to currency fluctuations than our neighbours in SA. Investing offshore is but one way to hedge oneself against the turbulence of currency movements. Once you are invested in the currency of your choice, your returns should be measured in that currency though as you have exchanged one currency for another.
Yields from developed market cash and bonds are often considerably lower in absolute terms than what investors can achieve locally. Often investors will apply the same argument to offshore equity or balanced funds, which does not necessarily hold true. Upon closer investigation, one will find that some experienced offshore asset managers delivered meaningful, long-term outperformance within their unit trust funds.
“Allan Gray and their offshore investment partner Orbis share a common founder and investment approach, adopting a bottom-up driven, fundamental research process as they scour the globe for the best investment opportunities for our clients – which are often in areas disliked by others,” said Etienne le Roux, Business Development Manager.
What are your options?
1. You can use your fund manager’s offshore allowance
If you value simplicity, and do not particularly want to expatriate your assets but are simply making an investment decision, there are various rand-denominated offshore unit trusts available to Namibian investors. The advantage of this route is that there are few administrative requirements and you do not need to buy foreign currency to invest – transactions are all in Rand even though the underlying investments are offshore. Since you are investing offshore using the unit trust management company’s offshore allowance, you also do not need to get a tax clearance from Inland Revenue or clearance from the Bank of Namibia. This route is convenient and simple. Nevertheless, it may not be right for you if you want to expatriate assets, or if you prefer not to be restricted to the funds of this type on offer in South Africa.
2. Use your own foreign investment allowance
The other option is to invest in foreign currency using your foreign investment allowance (currently N$6million per year) or money already in an offshore bank account. There are various ways to do this: you can choose from the vast selection of collective investment schemes available worldwide and go directly to the individual offshore investment management companies. If, however, you find too much choice confusing, you may wish to invest via offshore Linked Investment Service Providers (called ‘LISPs’ or investment platforms) – this gives you options but makes the selection more manageable. Besides, investing via a platform means you will have one point of contact you do not have to go to different companies to invest in funds from different investment managers and you may switch between funds easily if you need to. Meanwhile, the minimum investment amounts per fund are often lower.
How to invest offshore using your annual allowance
Although Namibian residents are permitted to invest up to N$6million per person annually in a foreign country (outside of the Common Monetary Area), investment minima vary significantly and can often be a barrier of entry to many investors. The good news is that Namibian investors opting to invest through selected offshore platforms though, can do so from as little as US$1,500.
Death and taxes
Generally, residents from Namibia are only taxed on income generated within the borders of Namibia, with the exception of interest earned abroad. Namibian investors should familiarise themselves with the potential estate duty and other taxes that might apply to them. Some funds are currently available to Namibian investors that are domiciled (registered) in jurisdictions where estate duty and capital gains taxes do not apply, however, individual investors might have unique circumstances that could trigger taxes and it is therefore, best to consult a qualified financial adviser on the matter. One’s last will and testament should also be updated to make reference to overseas assets.