Going offshore: The How

*This content is brought to you by Overberg Asset Management

By Mark Diuga*

We are told not to have all our eggs in one basket unless, of course, we are in a supermarket.

Somehow you made the decision, past or present, to invest offshore. It sounds murky, it can be murky. You know who you want to appoint to manage your money, perhaps you read https://www.biznews.com/wealth-advisors/2021/03/08/overberg-investing-offshore and are convinced, or you want to go at it alone. It is easy to find compelling articles explaining the pros and cons of foreign investment or the ‘offshore investment opportunity’ which proclaims genius with wonderful charts of historical performance juxtaposed with the foreboding caveat that you absolutely must not rely on, said historical data when making your decision. These articles may help you determine the who, what, why, where and when of offshore investing. There is the very little talked about, the how, the method you choose.

You want to participate in a stock market other than our own; whether it be to hedge currency, diversify or overpay for Tesla shares which seemingly will, against the principles set out in CFA (Chartered Financial Analyst) textbooks, provide you with future validation. Here are some of the most popular options:

Direct Investment

Investing direct is king, however, difficult for us peasants. Gold is expensive, shares can be impossible without being part of an employee incentive scheme and taking delivery on a few barrels of oil is not recommended. If you want to invest in physical metals or indeed cryptocurrencies, direct is the way to go, just remember where you hid the keys to your vault. Investing direct can be about trusting yourself more than you trust a third party.

CFD Trading

A Contract for Difference (CFD) is a contract-based investment which differs from actual ownership of the asset. These are synthetic derivative products which mirror the underlying trading pair. These creative instruments allow investors the ability to participate in a wide range of underlying shares, commodities, currencies, and cryptocurrencies in both buying and selling; whilst offering unnecessarily high leverage to those not trained in the dark arts. These are typically marketed via online adverts – the type that follow you from one website to the next, or videos that make you suffer through 5 seconds, before you have the chance to click SKIP. They all have a fancy app and usually make claims for ease of use, profit potential and low-to-no fees.

It is important to understand that a CFD is not the same as ownership of the underlying investment. The risks of a CFD are substantially higher; ranging from counterparty risk to wider spreads, no shareholder rights and dividends, no ability to convert for physical assets and, as we saw during the recent GameStop Corp. frenzy, these providers can restrict certain activities to protect themselves.

CFD accounts should (if at all) be utilised for short-term and/or speculative investments in markets or underlying pairs which would be otherwise difficult or time consuming to facilitate via alternative means. Do note however, contrary to what you hear during an advert or read in a chat room, this is not where the professionals ‘hang-out’. CFD platforms, such as Robinhood, sell trading data for the benefit of the large financial institutions. If you are not paying for the product, you are the product. Most retail CFD traders lose money. 

International Trading Account

Using a large and reputable custodian is the preferred choice of both the professional as well as the long-term investor. You can expect to pay an administration fee for the account and, in some cases, have an ‘execution only’ service option for you to manage your own investments, or appoint a Discretionary Fund Manager, such as Overberg, to manage the investment decisions and trading on your behalf. Whilst trading accounts provide many more vanilla investments compared with CFD platforms, you will still be able to access a wide range of global blue-chip stocks, collective investments, ETFs, bonds and of course, Investment Companies. Unlike CFDs these are not the accounts where the kids YOLO (You Only Live Once) their parents’ savings into highly leveraged trades.

It can be difficult to know where to go to establish an international trading account, as a South Africa resident, without being shoehorned into the only option available at your bank or via a local provider with a predefined and restricted list of investment choices. Overberg work with a range of international custodians to provide robust and low-cost alternatives whilst making the process as seamless as possible for our clients.

International Investment Policy

Policies come in all shapes and sizes with various degrees of insurance cover, investor protection and terms (duration). They can range from endowments to education plans or retirement products. Investors would typically use a policy to meet a future goal such as meeting the cost of a child’s tertiary education as opposed to a purely capital growth strategy. Policies can be more expensive than investment platforms but may provide investors with tax benefits, including the mitigation of situs tax on US and UK shares, they may be exempt from the judicial probate process on death and may have some bonus or uplift element if held until the end of the policy’s term.

International Structures

HNW (High Net Worth) clients and entrepreneurs establish companies or trust arrangements to build businesses, invest in a range of complex assets including private equity, or as a step to insure themselves against a hypothetical future liability. A company or trust must be fit for purpose and there are various rules both locally and internationally aiming to prevent misuse or abuse. International corporate services, in the right jurisdiction, can bring international businesses closer to their trading partners, provide administration simplicity as well as open alternative markets and increased profitability through a deep understanding of a variety of Double Taxation Agreements (DTAs). International trusts and retirement products can still be used as legitimate long-term and succession planning tools to consolidate international investments, which is particularly important to individuals wishing to maintain flexibility as to when and where (in the world) they wish to retire. 

Investment Companies are a proven and diversified long-term international investment option, and our team can help you navigate the various product types and planning options, from the complex to the direct. Let us show you how.

*Mark Diuga is Regional Wealth Manager and Director of Overberg Asset Management. 

• All writers’ opinions are their own and do not constitute investment recommendations or financial advice. Speaking to a qualified wealth and investment professional is crucial before making financial decisions.
• ‘Overberg Asset Management (Pty) Ltd. is an authorised financial services provider: 783’