One of the ironies of offshore investing re-ported by most investment analysts, is that demand for offshore investments tends to mirror rand weakness. People buying assets abroad when they are at their most expensive rand-wise are clearly making a political risk decision. This is nowhere more evident than in offshore property buying, with its physical attributes and perks such as the potential to gain residency and ultimately citizenship in the European Union.
Chris Immelman, MD of the Pam Golding Property group’s International Division, says that most people interested in acquiring offshore property do so in recognition of the limited opportunities in this country for their children, and a last resort escape strategy should things deteriorate.
“This is something that is becoming more important in South Africans’ lives. This is not an immigration play, as most of our clients love South Africa and intend to retire here – they’re buying an option and safety net.
“However, many of these offshore residential opportunities are also exceptional investment opportunities. We’re find-ing interesting opportunities in Miami, Brisbane, Germany, along with the perennial South African favourites of Mauritius and Seychelles.
“London is the go-to place, but for those wanting Euro-pean residency for their children, Portugal is the leading in-vestment destination,” says Immelman.
He rates Portugal as the top investment opportunity at the moment because of pricing, and also because it is on the cusp of rising.
Pam Golding Property is the leader in this market with a dedicated team scouring the world for these investment opportunities to help South Africans externalise their funds and help ensure they’re in the right location, says Immelman.
The entry level, he says, is US$300,000 for a unit in Mauritius, a recently launched £200,000 offering in London, or 500,000 for EU residency in Portugal.
“Several EU countries offer EU residency, but we have focused on Portugal because it has the most favourable under-lying risk, and our target locations, Cascais and Lisbon, offer the best inherent value at the moment, including reasonable international investment yields.
For instance, we won’t look at Spain, Cyprus or Greece be-cause of the higher risk profiles of those jurisidictions.
If you buy a residential property in Portugal your family acquires immediate residency with an unparalleled European lifestyle for you and your family, which includes the right to work in Portugal and to travel visa-free throughout Schengen Europe, as well as giving a secure international investment that earns you foreign currency income. This can also lead to full EU citizenship after six years,” he says.
Schengen Europe currently consists of 26 countries, which includes most European countries excluding Britain and Ireland.
“The basis of this ‘Golden Visa Portugal’ scheme is that the Portuguese state is commit-ted to supporting investment in Portugal in order to attract capital, promote job creation and increase investment in real estate.”
For those not looking to relocate, but still benefit from off-shore economies, stocks remain the asset of choice.
However, with traditionally low-risk assets currently at exceptionally high valuations, investors need to be mindful of the level risk in their portfolio.
Current valuations leave no margin of safety, so risk is most likely higher than most people suspect, says Greg Hopkins, Chief Investment Officer, PSG Asset Management.
Many investors remain un-aware of the level of risk they may unwittingly be exposed to in their portfolios and the real possibility of capital loss, imaging they’re safely positioned in low risk portfolios, he says, more especially so in the case of the valuations of many domestic equities.
“We’re not seeing intrinsic value in the high priced blue chip stocks at the moment, so we’re avoiding them for the most part. Conversely we are seeing opportunity domestically in the cyclical and out-of-favour resources and construction companies that the market generally seems to be perceiving as high risk at the moment.
“If one takes a long term perspective, then the margin of safety becomes evident in such companies,” explains Hopkins.
However, he admits that be-cause of the poor press these sectors receive at the moment it is hard work persuading investors to look at resources and construction companies and the uncertainty as to the turn-around timeline.
“A hallmark of value invest-ing is to be fearful when others are over-optimistically greedy, and to be greedy when others are fearful – but it can be a hard sell to clients,” he says.
“We follow a bottom-up approach to portfolio construction and look at each asset relative to others without making macro calls on where we want to in-vest.
“If we look at the stocks we have on our local and global buy lists, it is clear that there is more value offshore than domestically, but we are still find-ing stocks at home which meet our investment criteria.
“We are constrained by the regulations which prevent us from investing more than 25 percent of our domestic portfolios offshore and in almost all our equity and multi-asset funds we would hold more quality global companies than we do now if the restrictions were not in place.
“The diversifying (risk-mitigating) effects of diversification are another good reason why we like the global companies in our funds,” says Hopkins.
“As we comb the world for mispriced securities, we more often than not circle back to the same conclusion: numerous securities across a range of asset classes currently appear overvalued.”
Despite the opportunities it is finding, Hopkins says that in common with many asset houses it is cautioning investors not to expect future performance to be the same as they’ve enjoyed over the past five years.
“Central banks’ extremely accommodative monetary pol-icy to counter the effects of the global financial crisis has had the consequence of driving up the value of most in-vestment assets leading to very compressed yields on cash, government bills, treasuries and investment grade credit.
“As a result, investors requiring income from their investment portfolio have been forced further out on the risk curve, into things like property, high yield credit, equities and emerging markets.
“To maintain yields, investors have had to move into riskier assets and securities. If we look back at the returns that equity funds and listed property funds have delivered investors over the last years, it is clear that these returns have well-exceeded the long-term average returns for these asset classes,” he says.
One recent change in the market is that cash is beginning to provide a better opportunity as available bank, NCD and money market rates inch up. “Rates are improving and we’re looking at real returns in our diversified income funds,” he says.
The PSG Equity Fund has been the best-performing equity fund since March 2002 out-performing the All Share Index by a significant margin. Over shorter periods of time, the fund has maintained its top quartile relative ranking.
“We have achieved this performance by having a culture of research in our equity team which ensures a very thorough analysis of the securities we consider and hold.
“It has also been achieved by following a bottom-up process of investing in companies which offer value, sometimes excellent value, and of avoiding expensive companies,” says Hopkins.
Although PSG continually reassesses its portfolio to reduce risk, Hopkins says it is a long term investor and consequently does not try forecast market corrections, viewing such an eventuality primarily as an opportunity to in-vest some of its considerable cash holdings.