The Johannesburg Stock Exchange (JSE) is a small fish in a massive pond, accounting for less than 1% of the total global investable universe. That means that 99% of the world’s investment opportunities lie beyond South Africa’s (SA) borders. So, if your portfolio is primarily local, you are fishing in a tiny pool and missing out on a vast ocean of opportunities.
As wealth managers, we often remind clients that earning in rand, owning property in SA, and investing only in JSE-listed equities leaves a portfolio under-diversified and overexposed to local risks. Offshore and alternative investments broaden your opportunity set, spread risk across regions and sectors, and improve your risk/return profile. A well-diversified international portfolio lets you benefit from growth happening all over the world, not just at home.
The JSE also poses structural challenges. It is heavily concentrated in a few big companies and sectors. The top 10 shares make up about 60 – 70% of the index. By contrast, the S&P 500’s top 10 stocks represent around 40% of that index. Sector exposure is narrow too — mining, financial services and a few consumer businesses dominate, while fast-growing industries like technology, e-commerce, healthcare and clean energy are scarcely represented. To build a truly world-class portfolio, investors must look beyond SA and tap into the broader global market.
SA Inc. shares or those companies/investments overly tied to the local economy, which face their own economic and political challenges, is another headache for domestic investors. If all your assets are local, a downturn or crisis at home can negatively impact your entire net worth. While investors favouring domestic assets is a common phenomenon, this home bias in investing (where investors feel more comfortable investing in companies they know well, and, generally, these are more likely to be local) can lead to a lack of diversification, leaving you overexposed to SA-specific risks.
Offshore investing is also a tool for capital preservation. The term refers to the strategy of protecting the value of your investment portfolio over time. Holding a portion of your assets in hard currencies (US dollar, euro or British pound) and in more stable markets provides a hedge against rand weakness and local inflation. Understanding and implementing offshore diversification and capital preservation ensures long-term purchasing power, particularly important for those looking to preserve wealth across generations.
Beyond traditional markets, alternative assets are also gaining traction. These include private equity, private debt, real estate, hedge funds and structured products. While often less liquid and longer term, they offer unique return profiles and diversification benefits that can strengthen portfolios in today’s volatile, inflation-driven environment. As traditional approaches face limits, alternative assets are becoming essential tools for diversification, resilience, and long-term growth.
A common misconception is that moving money offshore is difficult. In reality, provided your tax affairs are in order, individuals can transfer up to R11mn per adult p.a., a significant amount even for wealthy investors. The process is far more straightforward than many believe.
As equity investors with an unconstrained global mandate, we have access to the highest quality, most exciting companies listed anywhere in the world, where even the most prominent investment managers are not constrained by the same liquidity issues facing local investment managers. Bizarrely, most SA investors would likely recognise more of the shares in the offshore Anchor High Street Equity Portfolio than they would in our local equity mandate. The fact that we are exposed to most of these companies in some way or form every day of our lives eases our home bias considerably.
So, why not sell up everything and invest it all offshore? There are investment professionals out there who advise their clients to do just that. Our answer lies in the fact that most South Africans still need to fund day-to-day expenses in rand, so a core allocation to local assets remains sensible. The right balance depends on individual goals, but we generally recommend providing for rand-denominated expenses before and during retirement, primarily with local investments and then allocating most discretionary wealth abroad. Over time, we believe you should have 60%-75% of your investable assets offshore, but here timing is very important.
Investing is not a one-off proposal and its implementation, but an ongoing journey. Asset allocation should be strategic, while externalisation must be measured, avoiding rushed moves at unfavourable exchange rates. Our role as wealth managers is to scour the globe for opportunities and guide clients on when and how to act. We are proud South Africans, but also pragmatists. With the freedom to invest globally, we choose to live in the sun and, where appropriate, invest in the shade.
