Offshore Investments

Using our Category II license Magwitch Securities are able to perform the role of a Discretionary Investment Manager. This allows us to create and manage investments and model portfolios for clients. The Magwitch models currently consist wholly of exchange traded funds, referred to as (“ETFs”).

An ETF is a marketable security that trades on a stock exchange. An ETF will own a basket of assets in the underlying investment so that the ETF may track an index, a commodity or bonds. When you buy an ETF, you are buying a portion of the fund with the sole purpose of delivering return that approximate the returns of the index to which it is benchmarked .

An ETF is a less expensive solution that offers exposure to the underlying asset class. This is because the issuer does not need to have a large cost structure that includes analysts as there is no need to research individual shares. The ETF issuer just needs to know what is in the index and mirror that holding within their fund. Indexing or passive investing through the purchase of exchange traded funds avoid most of the high fees associated with actively managed funds.

Active investing – as opposed to passive investing – aims to do better than the market i.e. produce returns in excess of the returns offered by the market. Active investing however is a lot more expensive. Active funds trade more and therefore pay more brokerage and taxes. They also need to recover the cost of research and the costs of expensive portfolio managers. These costs are recovered from the investor by way of higher fees. Higher fees will, over time, reduce returns and the investment outcome. Research shows that very few active fund managers beat the market over any meaningful period.

Magwitch can also act in an Execution Only manner on your account. On the Investors instruction Magwitch can trade in any share or ETF listed on most major stock exchanges in the world. We only trade on your behalf only when we receive a valid written instruction.

Magwitch utilises the Saxo Bank platform to manage models and execute trades. The Saxo platform falls under Saxo Capital Markets South Africa (Pty) Ltd which is a wholly owned subsidiary of Saxo Bank A/S, the parent company of Saxo Bank Group. The underlying shares and ETFs are housed with the Saxo Group’s safe custodian, the Citibank Group.

Why should individuals consider investing offshore?

Investing offshore can often seem to be quite daunting. There are a number of different options competing for your investment and you, as an investor, are forced to make decisions around where to invest and what to invest in. With so many different options there is always the possibility that the investor takes the easier route and avoids the offshore discussion entirely. To retain all your assets locally is however not the correct decision.

To ignore offshore would be to avoid diversification. Diversification is a technique that reduces risk by allocating investments amongst various asset classes and geographical locations. Often called “the only free lunch in investing” it seeks to maximise return at the lowest risk. The various asset classes react differently to events and thus a diversified investment tends to reduce downside risk as not all assetclasses move up or down at the same time.

The Johannesburg Securities Exchange, although well-developed and containing many large globally diversified businesses, makes up only 1% of the world’s total listed equity universe. Adding international exposure spreads your risk across different economies and geographic regions and provides the potential to earn returns from a wider set of opportunities over the long term. It gives you the opportunity to invest in the largest global brands out there.

In terms of the current foreign exchange controls South African individuals are able to remit up to R1m offshore per year. In addition to this you can take out a further R10m if you obtain a valid tax clearance certificate. You can make any number of investments during the year so long as the aggregate total of the investments falls below the annual allowance.

The Magwitch offshore portfolios offers individuals access to offshore markets at a low cost with a portfolio which suits your individual risk profile. Speak to your Financial Advisor about using the Magwitch offshore portfolios as part of your complete offshore solution.