Key questions to ask before moving offshore
Investors are seeking more investment opportunities than ever before as needs increasingly vary from wanting to protect against currency fluctuations or looking to emigrate, to merely wanting to broaden investment horizons.
This is according to Jeanette Marais, Momentum Investments CEO and Deputy CEO of Momentum Metropolitan, who was speaking at the recent Momentum Investments Global Matters conference – an annual event aimed at equipping advisers with insights to enhance discussions about offshore investing.
“We live in a global village and as such we’ve seen increased appetite from investors for moving money abroad,” said Marais. “But given today’s pressing challenges and opportunities, asking the right questions is just as important as giving or receiving the correct advice,” she said.
Global economic overview: Is there more upside to markets?
Speaking at the same event, Andrew Hardy – Director of Investment Management at Momentum Global Investment Management (MGIM), Momentum’s UK based global investment business, looked at whether this year’s market recovery has already been “priced in” to markets.
“There’s no doubt that markets have come a long way towards discounting the global recovery ahead,” Hardy said. “However, we think there’s still much more upside potential left for investors, particularly in those parts of the market that were hardest hit by the pandemic sell-off at the start of last year.”
The key risk according to colleague and fellow Investment Director at MGIM, Glyn Owen, is a return of inflation. “If investors begin to believe that an inflation rise will be persistent, bond yields would likely move materially higher, potentially undermining all risk assets,” he said.
He also spoke of the need to “balance real assets to protect against inflation with more defensive assets which would perform well in a lower inflation environment.”
But there are other, underappreciated risks facing global markets as Lorenzo La Posta, a senior analyst at MGIM, said.
These included the global lack of creative destruction, investors holding a high proportion of equities, the Chinese government’s reining in of “wild-and-free” tech companies and the democratisation of finance.
Can a local Linked Investment Service Provider (LISP) provide a one-stop-shop for an investor’s offshore needs?
According to Hymne Landman, head of Momentum Wealth and Wealth International at Momentum Investments in South Africa, there are a few important things to consider when selecting the most suitable offshore investment solution/options.
“Although client and adviser needs could be met by both local and international platforms, there are certain aspects that need to be thought through when choosing offshore options.
“These include the difference in the fund range available to meet investment needs, the impact of VAT on service and administration fees, the contract structuring options available for succession planning and the tax implications for investment returns,” said Landman.
In addition to this, MGIM portfolio manager Richard Stutley, highlighted the critical role of doing your homework and asking the right questions. “Questions in your arsenal should include how liquid is your investment, what are its associated fees, and how does it stack up from a sustainability or ESG perspective,” said Stutley.
Can you avoid advice noise, bias and blind spots?
Before making decisions around offshore investment options, it’s critical to assess the motivation for these choices. Greg Davies, head of Behavioural Science at Oxford Risk in the UK and Paul Nixon, head of Behavioural Finance at Momentum Investments in South Africa shared the results of a recent study on noise and investment advice, undertaken by Momentum Investments and Oxford Risk.
The results demonstrated that the identical client situation is interpreted very differently by different advisers. Nearly half of the variation seen in the recommendations given to clients by advisers is noise. In other words, it wasn’t as a result of any of the financial and personality information provided to advisers.
Meanwhile, Nixon discussed the role that our biological stress chemical, cortisol plays in investor behaviour. “When we are under the influence of cortisol we are less likely to use the logical parts of our brain, which could clearly be problematic for investing,” said Nixon.
“As a result of COVID-19 related fears, we saw investors switch about R1.5 billion between March and December 2020 and we saw the South African market dip by about 20,000 points,” he said. “About R100 million of investors’ money was lost because of people making switching decisions, intervening in their portfolios or exiting their investments.”
Balancing act
Arguably portfolio diversification has never been more important. While some see further upside in markets, others see major risks ahead.
“There are compelling arguments on both sides of the inflation question and there’s no way of knowing who is right. Advice noise, bias and blind spots add further pressure – there are multiple hurdles investors have to overcome and this is true whether you invest locally or abroad,” said Marais.
“This once again illustrates the need for a well-balanced portfolio, sound financial advice from a trusted source, composure during times of market stress and a long-term mindset.”
Read: Offshore investment options for South Africans
