Time to take assets offshore?

By Staff Writer
With the rand in very high territory, at levels last seen in January 2008, does this represent an opportunity to take assets offshore?

"Yes," says Marriott Asset Management CEO Simon Pearse, "if for no other reason than for currency and market diversification. South Africa accounts for approximately 0.5% of world GDP while the USA accounts for approximately 30%. To hold all your investments in one relatively small economy is not prudent, so international diversification will always be sensible."

However, Pearse cautions that when investing in any security in any jurisdiction, it is important to pay an appropriate price for the dividend or income stream. In other words, investors should look for reasonable value. Many of the large international companies in stable industries are offering unusually good value in the form of high dividend yields, making them attractive for investment.

Investors who may have already invested offshore may have suffered a double-whammy: as some foreign markets have severely disappointed and the rand strength has further eroded value. As a result, offshore investing has been disappointing for a decade.

"This is a result of so many international mega cap companies having been overvalued for many years from the late nineties, explains Pearse. "Dividend yields in 1999 were in the order of 1%. Today those same companies are offering dividend yields of between 4% to 6%. This implies that an investor today is paying a quarter of the price for the same income stream, clearly a very different opportunity."

A strong rand makes these buying opportunities even more compelling as investors will be able to acquire more income streams for their Rands.

In addition to the investment options available, Pearse looks to further developments. "At Marriott, we expect that we will probably see more offshore structures that offer legitimate tax benefits. This would include investment vehicles like insurance contracts that wrap the investment in such a way that tax and probate issues are addressed," he elaborates.

Investors need to take care regarding specific investments. The global economy is showing slower growth which would generally manifest itself in less growth in corporate dividends and hence less capital growth. Seeking out reliable dividend streams and high dividend yields will therefore be the better way of ensuring reasonable returns.

"I would say that investors seeking to diversify their holdings would do well to look at offshore options, but to select wisely from within the spectrum of offerings," concludes Pearse.

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