ETFs: Get offshore easily with diverse options | Fin24
 
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ETFs: Get offshore easily with diverse options

Apr 17 2018 14:02
Simon Brown

When I was first learning how to invest in the 1980s, the only way to invest offshore was to be a smuggler. South Africa had a crazed finger-wagging president, a dual currency exchange rate (the financial rand was quoted differently for corporates), sanctions and severe exchange controls. 

So anyone who wanted to get money offshore had to slip Krugerrands in their toothpaste or stick R20 notes in their underwear before heading on an overseas trip.

But luckily times have changed, and since Deutsche Bank's launch of offshore exchange-traded funds (ETFs) in 2009, it literally just takes a few clicks. 

The past year has seen an explosion of new offshore ETFs being listed, with over 20 across a wide range of assets and geographies now available for investors.

The most popular are the S&P500 and MSCI World ETFs, with the former having issued four and the latter two. These two indices are largely the same – while the S&P500 tracks the largest US stocks and the MSCI tracks developed-market exchanges with some 1 600 stocks, they’re all global companies. 

A S&P500 stock is not only doing business in the US. If we look at the geographical breakdown for revenue between the two indices, we end up with pretty much the same split, with the US at some 55%.

In terms of sectors, the S&P500 has tech as the largest with just over 25% and financials at around 15%, while the MSCI has both tech and financials at around 18%.

Another general offshore ETF is the global ETF from Ashburton, which covers the largest 1 200 stocks, representing 70% of the global market cap. 

This ETF also includes a smattering of emerging markets but no direct African exposure, and also has tech and financial stocks at about 18% each.

Lastly, in the general space is the newly listed Global Dividend Aristocrats, which has virtually the same geographic split as the first two mentioned but has consumer staples as the top sector at around 21%. 

Tech is a modest 5%, and financials come in at just over 9%. 

The sector differences in this ETF are due to consistent dividends being the key metric. 

For example, US stocks need 25 years of dividend payments to be considered for inclusion, and most of the large tech stocks haven’t even been in existence for that long.

As JSE investors we can also get more niched, with global property ETFs and two recently listed global bond ETFs. 

There are also country- or regional-specific offshore ETFs with the geography being a factor of listing, rather than where revenue is earned. 

Itrix offers a European ETF that is dominated by stocks listed in Germany and France, but again these are global businesses earning profits all over the world.

Staying with niche products, there are also two ETFs from Cloud Atlas focusing on Africa, excluding SA. 

The first is a general equity ETF, while one with a property focus has just been launched. An emerging-market ETF from Satrix tracking the MSCI Emerging Market Index is also available. 

Here a quarter of the index is made up by China, with South Korea at 15% and India at 10%. This ETF makes a great addition to a more generic developed-market ETF such as the S&P500 or MSCI World.

Lastly, we have a recently listed S&P Tech ETF, which focuses exclusively on technology stocks, and this would fit well with the tech-light Global Dividend Aristocrats.

So the smuggling days are over – we can get money offshore cheaply and easily from the comfort of a local JSE trading account. Of course, another advantage is that we can buy ETFs within a tax-free savings account.

This article is part of the cover story that originally appeared in the 12 April edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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