Last month I reviewed all the shares I hold directly in local and foreign companies. The exercise was prompted by a webinar that I attended which was titled Offshore investing post Covid-19.  This review exercise is not something that I am in the habit of doing. However hearing about the big returns that the presenters achieved since going offshore in 2014 I became curious about my own offshore portfolio performance.

The benefits of going offshore and indirectly diversifying my portfolio became so glaring  during this exercise. Up until then I had been feeling despondent about the state of our domestic economic affairs. What with all the money our government has had to borrow in order to finance the costs of Covid-19. Including the relief provided to individuals and companies. We’d just been downgraded our stock the market had already taken a hit because of the negative market sentiment. There was no shortage of bad news.

I started with an analysis of my domestic share portfolio as mentioned in my last blog post here. Most of the stocks I hold in my SA portfolio are shares I have held for periods longer than 3 years. On the 5th of May when I did the review my SA portfolio was down 44% on cost since inception. A simple comparison of the cost price when I bought them compared with the market price on the 5th of May multiplied by the number of shares I own. That portfolio of shares is loss making at this stage. However since I have not sold these shares the losses are theoretical.

Overall I hold shares in 7 companies and all of them were loss making except for Sasol. I bought Sasol shares during that crucial week when many thought that that would be the end of the company. If I exclude Sasol from the analysis the losses increase to 47%.

The misery that is my domestic portfolio motivated me to do the same analysis for my international portfolio.

I hold only two shares in my offshore portfolio and some cash which I have accumulated overtime as the companies have paid dividends. I started investing offshore after Nene Gate. Most of you would recall that fateful day when Zuma fired the then Finance Minister Nhlanhla Nene replacing him with Des van Rooyen. The latter would end up being known as “the weekend special” as he was replaced by Mr Pravin Gordhan before the weekend was over. I remember it so well because I was a new mom – 3rd time around.

Like most taxpayers I was feeling very aggrieved about the misuse of my money by the government. You would remember some of the corruption allegations and scandals that overshadowed Zuma’s reign. It was upsetting to see the rand depreciate so quickly after Nene Gate that I regretted not taking my money offshore sooner.

In my previous blog post I mentioned how I traded using Standard Bank’s online trading platform. I was a client when they launched their Webtrader platform which enabled one to buy shares in the major stock exchanges of the world. That was back in 2013. They later partnered with Alec Hogg, founder of Biznews in 2014 when he took money offshore as part of his Biznews Share Portfolio.

He started out his portfolio with $200 000 to invest, the equivalent of R2 254 000 back then.  Each month he would host a webinar where he would report back on the portfolio. He’d tell us what was happening with the companies he had invested in and what was happening globally. He’d also offer guidance in terms of which stocks he was eyeing and the ones he was looking to sell. I followed his journey from the fringes, afraid to take the plunge for over a year. That was until that day in December 2015 when president Zuma fired Nhlanhla Nene. I wondered to myself if the worst had happened, all the things journalists had been warning us about.

Taking money offshore after Nenegate

Nene Gate gave me the reason to finally take my money offshore. The subsequent fall in the JSE and weakening of the rand was a major wake up call for me. When things start affecting your pocket you have no choice but to open your eyes.

The following Monday I visited a foreign exchange branch of a bank to buy dollars. That was at an exchange rate of R15.40 to the dollar compared to the R11.27 average exchange rate when the Biznews Share Portfolio started. As I’d already already opened an account with Webtrader, I simply transferred the dollars into my Webtrader account.

Standard Bank through the initiative with Alec Hogg did a lot of hand holding during that time. By the time I opened my own account I at least knew what to look out for. I relied on that team for stock picks but would still go and do my own further research on the companies as most information is freely available.

Take a chance

I have only ever sold a share in this portfolio once, also at the recommendation of that team. I am happy with my current share portfolio which is made up of two shares, Microsoft and Apple. Who would complain about owning Microsoft right now? Can you imagine the number of teams meetings that are being held globally with people working from home? And that isn’t even their primary asset. Oops, I digress!

When I opened my offshore trading account in 2015 the rand was trading at R15.40 against the dollar. Today 1$ will cost you R17.33 . When I did the exercise in May the rate was R18.50 per 1USD. Overtime it has become expensive to own everything in rands only or to be invested only in SA. Ask those who frequently travelled abroad.

Investing offshore provides the benefit of diversification through a different currency and the underlying asset that you are buying. In my example by exchanging rands for dollars I no longer worried when the rand depreciated against the dollar as it meant 1$ would buy me more rands.  Furthermore I used my dollars to buy shares (the underlying asset) in companies that are not based in South Africa. These companies are not influenced by what happens in the South African market or economy.

This is evident in the performance of my portfolio since I started in December 2015. In dollar terms this portfolio is up 96% on cost. Including the effects of the exchange rate (if I convert my USD held shares into rands), the overall return is 157%. This is because I invested in these shares when the rand was trading at R14.11/$1 (There was a time lag between converting my rands into dollars and buying the shares)  compared to the R18.50/$1 in May at the time of doing this exercise.  This has the effect that when I combine my SA portfolio that is down 44% with my foreign portfolio which is up 157%, the net effect is an overall share portfolio that is positive on cost since inception. That is the magic! The foreign shares have made the investing journey worth my while.

Investing offshore is accessible to everyone and is an option available to all individuals. Whether one chooses to buy the shares directly in the companies or via ETFs or unit trusts or other structures is an individual choice. For the risk averse, there is also the option to save/ keep your cash in a foreign currency account.

The SARS allows individuals to take R1M offshore annually without getting clearance from them. You only need to deal with your bank and broker in facilitating transactions less than the R1M threshold.

For me investing offshore was about diversifying my portfolio because everything else I own is in South Africa. Just because you eat, sleep, work and jol in this country doesn’t mean that the rest of your money should too. There are options. Consider the returns on your other investments in SA, be it the house that you live in, or the money you have invested elsewhere in SA. Have the returns been worth your while?

I would love to hear about your own experience of investing, whether in SA or offshore. What has worked for you? Is diversification of your investments something that concerns you?