Best time to invest offshore

The rand recently reached its worst-ever level against the US dollar, leaving many investors wondering whether to take their money offshore.

However, investing offshore when the rand is at its weakest may not be the wisest – or most profitable – move.

The rand has been trading above R19/USD since mid-May, and many experts believe it could weaken if the government continues to make poor decisions.

Stonehage Fleming’s head of global equity management Gerrit Smit said queries about the best time to invest offshore often surge when the rand weakens, which it steadily has in 2023.

Smit compared the outcomes at different times to see whether investing offshore when the rand weakens is a winning investment strategy over time or not.

His graph below charts the outcome of an investor taking their annual investment allowance of R10 million offshore annually over the past 20 years.  

He considered the following timings for investing in the MSCI All Country Total Return Index (ACTR).

  • 1 January each year
  • Proportionally on the first day of every quarter
  • At the point of the strongest rand
  • At the point of the weakest rand

The graph shows that, logically, taking your money offshore when the rand is at its weakest has been a losing strategy over the past 20 years.

“On the other hand, simply investing your annual offshore allowance on 1 January each year would have produced returns that are only marginally different from doing so at the point of the strongest rand (and may even be a better option at times since you are invested earlier),” he said. 

“As everyone is aware of how difficult it is to project any currency, this simple strategy seems quite effective for a structurally weakening currency environment.”

Source: Gerrit Smit, Stonehage Fleming

Where and how to invest offshore

Smit said investors have another question about investing offshore – where to invest geographically.

“In our view, just as timing the currency is very difficult, if not impossible, so is trying to pick one region over another,” he said. 

“Not only are you likely to get the timing wrong on either the buy side or the sell side, if not both, but you’ll also incur trading costs for many transactions.”

Instead, he recommends owning a portfolio of global businesses with a balance of geographic, and therefore currency, exposures. 

Three-quarters of the companies Stonehage Fleming owns are listed on the New York Stock Exchange but are truly global businesses. 

“We also pick up the strong organic growth in emerging markets through these global operators without the volatility of those stock markets. Some 30% of our exposures are to emerging markets.”

However, he cautioned investors regarding the recurring trend of growth investing.

“Over the past 25 years, growth has outperformed value investing by approximately 4% per annum on a long-term compound performance basis,” he said.

However, in 2022, growth underperformed amid the most aggressive rate-hiking cycle in history.

Current signs suggest that growth is returning, as the circumstances that made value investments perform better have mostly played out.

“While core US inflation remains somewhat sticky, US headline inflation has been dropping well, and the Federal Reserve’s task of controlling inflation through hiking rates seems to be mostly done. US interest rates are settling at lower levels than feared just a few months ago.”


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