offshore asset swaps

Investing offshore has been part of many well advised people’s portfolio diversification for many years and if you had listened, you would have had almost 2000% growth since 1971. (ie for those that started investing 50 years ago and are now happily retired)

Most wealth managers will still tell you that your diversified portfolio needs offshore exposure and with minimums reduced to R500/month with Allan Grays asset swop product which indirectly invests offshore.

The minimum lump sum investment into the asset swop product is R20 000.

How does an asset swap work?

Investor buy rand-denominated unit trust with Allan Gray as an example. Allan Gray then uses its asset swap capability to invest the funds offshore. Any returns are reptriated to SA and paid out in Rands.

So why is it so important for South African investors to have offshore exposure?

Actions of the SA Government and the NHI bill currently before parliament are negatively impacting the Rand and there is a strong chance that it will have a long term negative impact on the Rand.

Bailouts of the State Owned Enterprises and the ability of these bailed out SOE’s to repay their debt is putting SA on a slippery slope to further downgrades by the ratings agencies.

A downgrade to Junk status would be simply disastrous for the SA economy. Our already unaffordable debt levels would become more expensive. There would be a massive outflow of foreign investments from foreign institutional investors. Business confidence will take a knock and amongst a host of other potential negativity, the Rand will take a beating.

The worrying thing about allowing our sovereign debt rating to become Junk is that it would likely take more than seven years of very hard work to return to investment grade. Some countries have taken longer than 10 years to return to investment grade.

The US/China trade war is anothe factor negatively affecting the Rand, with fears that investors will will continue to shy away from risky emerging market investments in the face another potential global recession.

It is incredibly difficult as a retired individual to watch your returns diminish and for many, the need to reduce their drawings from their funds.

For more information on the Allan Gray offshore asset swop products available, please contact us.

Disclaimer: The opinions expressed here are personal in nature and do not constitute advice in any way whasoever.