Stephen Gunnion
14 November 2008
Johannesburg — RAND weakness this year led to a growing appetite for offshore investments, with investors tucking into unit trusts denominated in foreign currencies in the third quarter.
After net outflows in the first half, offshore unit trusts saw net inflows of R1,9bn in the third quarter as purchases of more than R10bn in funds more than offset R8,5bn of outflows.
Association for Savings and Investment SA (Asisa) CEO Leon Campher said it was ironic that investors waited to make their move offshore until the rand had weakened considerably against the dollar. The rand began the year at R6,76/$, but weakened to R8 by mid-September and reached R11,43 by the middle of last month. This meant investors fleeing into foreign currencies in the third quarter were already paying a huge premium.
Local rand-denominated funds attracted net inflows of R19,9bn. Total assets under management in locally registered foreign funds stood at R99bn at end-September, while local rand-denominated funds grew to R647bn.
Pieter Koekemoer, head of personal investments at Coronation Fund Managers, said investors who took their funds offshore before end-September missed out in the worst of the rand weakness. Coronation had been receiving more client inquiries about offshore funds in the past few months.
"Most managers for 2008 have been banging the drum for taking more funds offshore because the rand was fragile because of the current account deficit ... so you have had a lot more emphasis on increasing offshore exposure," Koekemoer said.
The vast majority of fund managers had made use of the increased offshore allowance for pension funds, raised from 15% to 20% of assets in this year's budget. But it had taken time for the increased limit to take affect as it had to be gazetted, which could partly explain the rise in inflows to foreign funds in the third quarter.
Koekemoer said though the potential for rand weakness at the beginning of the year was the argument for including foreign equities in diversified portfolios, the slump in global equity prices made valuations attractive to South African investors.
"We think it's a very good entry point for a longer-term investment in foreign equities," Koekemoer said. "European equities on average are trading at a dividend yield that is higher than government bond yields."
Campher said investors should stick to their plans despite market volatility. "If your strategy is to have 20% offshore, stick to it, but do it gradually," Campher said. "Investors need to understand that investment portfolios may temporarily diminish in value because of market volatility, but that actual losses are only incurred once investment holdings are sold."
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