At a recent presentation by Coronation Fund Managers, they tried to ask and answer this question. These were their views…

The answer: “It depends”.

Ultimately, it requires a comprehensive financial planning process with the assistance of a competent financial adviser.

Including offshore exposure reduces your expected risk and increases your expected return

  • 20-30% exposure needs to be your starting point & the most common recommendation for retirement savers
  • There are many reasons why you could easily justify higher exposure and these include:
    • Larger foreign currency denominated spending
    • Bequest motives – multiple generations living on different continents
    • Larger balance sheets where the amount needed to match SA liabilities <70%

Externalised rands or rand-denominated offshore?

Coronation still thinks externalised rands trump rand-denominated exposure.

Whilst externalising these assets can be administratively involved and may have immediate cost implications, these caveats should be weighted up against a better sovereign risk insurance value. Exchange control has followed a dovish path for past two decades, but all bets will be off in the (unlikely but non-negligible) event of a balance-of-payments crisis. More rand-denominated funds likely to be impacted by capacity constraints.

My comments:

  • It does definitely depend on an array of circumstances which will differ from person to person
  • No exposure makes no sense
  • Externalised investments (at appropriate currency valuations) have significant advantages (returns, diversification, tax etc..) and are preferable if the circumstances permit
  • Get advice

Disclaimer: The information provided is not intended to address the circumstances of any particular individual or entity and should not be considered to be advice in any way. No person should act upon this information without first obtaining professional advice.

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