Global Investments. Diversifying your Wealth

Transcription

1 Global Investments Diversifying your Wealth

2 It has been said: The world is a book, and those who do not travel read only a page. The same can be said of investing globally. The availability of a large number of investment options can make investing a daunting task. Questions about how to invest globally and how much to invest may also not always be easy to answer. STANLIB offers a comprehensive range of global portfolios across different regions, asset classes and risk profiles. There are valuable reasons why you as an investor should look at global investments as an option. Investing globally Build a successful portfolio With globalisation becoming an increasingly significant factor in both investment markets and our daily lives, investing globally has become an essential part of building a successful portfolio. By taking advantage of investment opportunities globally, you can share in the growth of the world s most important and profitable industries and companies, and also benefit from holding investments in other currencies. Diversification An important part of building a diversified portfolio is the inclusion of global investments. Our research shows that spreading investments across different countries (asset classes, industries and currencies) is an effective way to produce better risk-adjusted returns compared to investing only in South Africa. Research conducted over a period of 40 years shows that your risk/return ratio improves by 14.5% if you invest 30% of your assets offshore. This means that you have a lower risk exposure for a similar return. 20% 18% 16% Risk / Return (%) 14% 12% 10% 8% 6% Note the reduction in risk 4% 2% 0% 100% Domestic 100% Global 70% Domestic, 30% Global Return Risk Source: STANLIB 1

3 Markets around the world offer different levels of growth potential - with corresponding levels of risk - and generate their highest returns at different points in the economic cycle. By diversifying your investment across different markets, you increase the possibility of benefiting from another market performing well, while reducing the effect that a falling market can have on the value of your investment. It is difficult to constantly pick winning regions; even investment specialists with superior information make wrong predictions. Risk is reduced if investments are spread across a number of regions. Higher potential growth There is a much greater range of investment opportunities around the world than in our country. According to the International Monetary Fund, South Africa contributes a mere 0.6% to the global GDP (gross domestic product). The JSE comprises about 0.6% of the global stock market index. Thus, by investing globally you gain access to part of the 99.4% of global shares not represented in South Africa. For example, there are no oil producers on the JSE (like Exxon, BP, Chevron), or technology hardware producers (such as IBM, Intel) or softdrink manufacturers (Coke, Pepsi) or brand-name pharmaceutical companies (Johnson & Johnson, Bristol Myers Squibb, GlaxoSmithKline, Merck). There are many other examples, such as car manufacturers (Toyota, Hyundai, BMW, Volkswagen and Mercedes) or global food manufacturers (Kellogg s, Nestlé). World Economic Outlook estimated October 2010 Below 1% Between 1% and 3% Between 3% and 5% Above 5% Insufficient data Source: IMF (International Monetary Fund) Valuable currency protection Unit trusts holding investments denominated in foreign currencies offer protection against volatility in the Rand. 2

4 How much should you invest globally? Many factors including your risk profile, investment objective and the expected time horizon of your investment need to be considered when making an investment decision. How much you should invest globally will depend on your individual objectives. Depending on your risk profile, part of your investment should be invested globally to provide a well diversified portfolio and to help reduce the overall risk of your portfolio. The three methods outlined below can assist you in determining the percentage of your portfolio that should be invested globally. Method 1 Rule of Thumb Market commentators vary their recommendation from 15% of a portfolio to more than 50% when considering your offshore allocation. In terms of how much of one s portfolio should be exposed to offshore markets and currencies, a general industry rule of thumb is around 25% to 30%. Method 2 Optimal mix for Domestic and Global funds The optimal mix for offshore exposure is dependent on your particular risk profile. The table below sets out a combination of domestic and offshore exposure based on the maximum potential return for a given level of risk. Research based on the efficient frontier investment curve, which takes risk and return into account, suggests that an allocation of 70% onshore and 30% offshore is an optimal mix, but remember that this will be influenced by your individual risk profile. The optimal mix of assets for the different risk profiles, assuming a balanced global portfolio mandate of 60% in equities, 25% in bonds, 10% in property and 5% in cash, has been estimated as follows: RISK PROFILE DOMESTIC GLOBAL Conservative 94% 6% Moderately Conservative 84% 16% Moderate 79% 21% Moderately Aggressive 67% 33% Aggressive 60% 40% 3

5 Method 3 Investing your Net Investable Assets on a Global Asset Allocation Basis Establish the value of your net investable assets through prudent financial analysis: Are your local liabilities (current and future) covered by income being produced from local investment assets? Have you considered your current level of expenses? Other important considerations to keep in mind: future living expenses; the possibility of taking on more debt and tertiary education expenses The balance, after taking the above into account, will be deemed as net investable assets, which should be treated as global investable assets. This does not necessarily mean that as a global investor you should invest say 24% in the USA (based on the following diagram). It simply indicates that the world is a big place with many other opportunities outside of South Africa. Breakdown of the world economy estimated October 2010 Canada 2.3% Germany 4.6% Russia 3.1% Euro-area 16.7% UK 3.5% USA 22% Japan 8% China 12.18% Sub- Saharan Africa 1.8% India 2.9% South America 11.18% Brazil 2.9% South Africa 0.6% Australia 1.8% Source: IMF (International Monetary Fund) It is essential that you understand fully what your objective is to determine how much of your free investable assets should be exposed to global markets. You need to determine this with your financial adviser and also determine your risk appetite which will guide you on how much global exposure you should have. 4

6 Investment Risks Investing is not without risks. Although STANLIB strives to reduce these risks, you should bear these in mind when making your investment decisions. Unit trusts offer diversification, at a fraction of the price of buying the underlying assets directly. This is one of their key strengths to help manage or reduce risk. Other potential risks include: Volatility: Growth assets move up and down in price, and can be volatile. The more rapid the movement, the higher the volatility. However it is worth remembering that growth assets also have the potential to provide better returns. Economic and Political Risk: The growth in the earnings of listed companies is often related to the performance of the economy. In times of an economic boom, companies tend to grow their earnings. The opposite is also true. These external factors often have an impact on company performance and share prices/ values. Political actions, such as coups, civil unrest, or even labour policy changes can also unsettle financial markets. Keeping up with inflation: Inflation erodes the purchasing power of money. It is therefore important to invest in growth assets that are likely to outperform inflation over time. Company Risk: Shares issued by companies are only as good as the companies behind them. Despite the best forecasting efforts by analysts, companies can fail. It is wise to be diversified by investing in a number of different shares. Unit trusts adhere to strict guidelines, ensuring that portfolios are adequately diversified. Currency Risk: When investing globally, you are exposed to the currency in which your foreign investments are domiciled. The value of currencies can change substantially over time, either adding to or reducing your returns. It is thus important to consider the impact currency movements may have on your investment. There are a number of ways in which you can minimize risks when investing offshore. You can ensure that you make the appropriate asset allocation decision. You also need to choose the correct investment horizon given your investment objectives and constraints. Your financial adviser can assist you in making the right investment choice in terms of structure and portfolio composition. 5

7 Why consider STANLIB s Global Solutions? STANLIB, the largest unit trust company in South Africa and with over 40 years of investment experience, led the way in offering global investment opportunities to South Africans when exchange controls were first relaxed. We have a presence in seven countries outside of South Africa and, as part of the Standard Bank group, we have a presence in most major financial centres in the world with a growing number in emerging markets. STANLIB s skills are in proactive, valuation driven asset management. We believe that we can add value through our superior research and rigorous investment process, with a specific focus on asset valuation. We actively seek out assets which trade at levels below their intrinsic value. It is our view that each investment area requires different skills and approaches and hence we create small teams, each with a dedicated focus. These multi-asset teams allow us to appoint talented and passionate people with the specific skills to deliver the best potential outcome for our clients, backed by our rigorous process. We follow the same philosophy in our approach to offshore investing but where necessary, we complement our own in-house skills by carefully selecting experienced asset managers who share the same valuation driven approach. 6

8 How to invest globally You can either invest in our Rand denominated funds or invest in our foreign domiciled funds which are denominated in foreign currencies. The Rand denominated range of funds is an easy and effortless way to diversify offshore. You do not have to apply for foreign allowance clearance and your application does not have to be approved by the South African Reserve Bank. You get all the benefits of investing globally and dealing with a South African institution without having to physically take your money offshore. On the other hand, if you would like to invest in foreign currency and be able to use the proceeds of your investment offshore to fund a child s education or retire abroad then it is worth investing in our Jersey-based foreign denominated funds. Rand Denominated Funds Structure Voluntary Investment such as a unit trust fund STANLIB Retirement Annuity / Preservation funds STANLIB Linked Life Annuity Maximum Offshore Allocation Unlimited 20% of total Portfolio 20% of total Portfolio STANLIB s asset swap capacity gives you access to offshore investments, denominated in Rands. Voluntary Rand denominated investments are not limited to your foreign allowance amount Monthly debit orders can be used to make use of Rand cost averaging Easily accessible, as you do not have to apply for foreign allowance clearance It is also ideal for investors looking for global diversification of their investment portfolios Foreign Allowance Funds Structure Voluntary Investment Maximum Offshore Allocation R4 million per annum Foreign allowance investments are subject to a R4 million per annum maximum per client Owning funds denominated in foreign currency offers protection against a depreciation in the Rand Aimed at clients who have money offshore or would like to utilise their foreign allowance Foreign currency investments makes it easy for you to transact with foreign accounts, as long as those accounts are in your name Your financial adviser can assist you in making the right investment choice in terms of structure and international portfolio composition. 7

9 STANLIB s Global Fund Range Cash and Bonds Managed Equity STANLIB Euro Cash Fund STANLIB US Dollar Cash Fund STANLIB Sterling Cash Fund STANLIB Global Bond Fund STANLIB Global Conservative Fund STANLIB Global Balanced Fund STANLIB Global Aggressive Fund STANLIB Global Equity Fund STANLIB European Equity Fund STANLIB Global Property Feeder Fund Guide to STANLIB s global fund range GLOBAL INVESTOR I need a Rand Hedge I can invest for 3-5 years I can invest for 5 years or more STANLIB Euro Cash Fund STANLIB US Dollar Cash Fund STANLIB Sterling Cash Fund STANLIB Global Bond Fund STANLIB Global Conservative Fund STANLIB Global Equity Fund STANLIB European Equity Fund STANLIB Global Aggressive Fund STANLIB Global Balanced Fund Note: The above range of funds is available in US Dollar denominated Jersey-based funds and a similar range of South African Rand denominated funds. STANLIB Global Property Feeder Fund* *Currently only available in the Rand denominated range. Please go to for more information on these funds. 8

10 STANLIB s Global Managed Solutions Our managed portfolios are aimed at investors who seek a diversified investment portfolio but want the asset allocation decisions taken on their behalf. They offer simplicity and full-time professional management of investors money. Benefits of investing in our managed solution range: These funds are actively managed by the fund manager to take advantage of opportunities in the market. Investors do not need to rebalance their portfolios themselves, as this is done by the fund manager, thereby saving money on switching fees. STANLIB Global Conservative Fund STANLIB Global Balanced Fund STANLIB Global Aggressive Fund The STANLIB Global Conservative Fund is managed on a cautious basis. The portfolio has the lowest weighting in equities. It offers the investor a more conservative level of capital growth than would otherwise be expected from a fund with a higher equity component. The STANLIB Global Balanced Fund s assets are managed in order to minimize risk but at the same time expose the investor to assets within geographic regions and sectors that have the most potential. The fund has the second highest equity weighting of the three managed portfolios. This gives the fund a higher potential for capital growth than the STANLIB Global Conservative Fund but at a slightly higher risk rating. The STANLIB Global Aggressive Fund invests mainly in growth stocks located in geographic regions and sectors that have the highest growth potential. The fund has the highest equity weighting of the three managed funds. This gives the fund the highest potential for capital growth but at the same time slightly higher volatility levels can be expected. Note: The above range of funds is available in US Dollar denominated Jersey-based funds and a similar range of South African Rand denominated funds. Please refer to our website ( Long-term strategic asset allocation STANLIB Global Conservative Fund STANLIB Global Balanced Fund STANLIB Global Aggressive Fund Property 15%-25% Property 5%-10% Property 15%-25% Equities 15%-25% Equities 40%-50% Bonds 20%-40% Equities 65%-75% Bonds 20%-30% Cash 40%-60% Bonds 10%-20% Cash 15%-30% Cash 5%-10% 9

11 Business Rules Rand Denominated Minimum investment amounts: The minimum investment amounts for the STANLIB Global range of portfolios is R5000 with a debit order minimum of R500. Charging Structure: Maximum Upfront Manager Charge Maximum Service Charge Total Charge (including intermediary portion) Intermediary Portion Total Charge (including intermediary portion) Intermediary Portion Cash Funds 3,0% 1,80% 0,50% 0% Bond Funds 3,0% 1,80% 1,50% 0,50% Property Funds 5,0% 3% 1,55% 0,25% Managed Funds 5,0% 3% 1,50% 0,50% Equity Funds 5,0% 3% 1,35% 0,50% Net Asset Value (NAV): Prices are calculated on a NAV basis, which is the total value of all assets in the portfolio including any income accrual and less any permissible deductions from the portfolio divided by the number of participatory interests in issue. Permissible deductions include brokerage, MST/UST, auditor s fees, bank charges, trustee/custodian fees, RSC levies and the annual management charge levied by STANLIB Collective Investments Limited. Initial Charges: The initial charge is deducted from the full investment value and the remaining amount is allocated to the selected investment options. Commission paid to intermediaries is incorporated in the initial charge. Any additional investment will incur an initial fee. Please refer to the latest fund fact sheet(s) for more details. Charges are all VAT inclusive. Annual Service Charge (levied monthly incl. VAT): The annual service charge for the individual portfolios is accrued daily and levied monthly on the market value of the portfolio. Certain portfolios have a performance based service charge which shall be a variable amount that may either increase or decrease, depending on whether the Portfolio Manager has added or detracted value for the portfolio relative to a passive investment in the portfolio s benchmark. Please refer to the latest fund fact sheet(s) for more details. The annual service charge is normally deducted from the income received by the portfolios. Switching: A switch involves selling participatory interests (units) in one portfolio and investing the proceeds in another portfolio. STANLIB Collective Investments Limited does not normally charge initial charges twice, other than in the instance where the original entry was into a portfolio with lower charges than the portfolio into which the investor will be investing. Accordingly, the investor will have to pay in the difference in the initial charges. However, the investor and the representative (intermediary) may agree on a different arrangement to that mentioned above, in which case an initial fee as agreed, between the investor and the intermediary, will be charged on the switch transaction. As costs may change from time to time, please consult with your authorised intermediary. Turn Around Times: New Business: 3 days, Switches: 2 days, Redemptions: 3 days Foreign Currency Charging Structure: Equity Funds Bond Funds Currency Funds Managed Funds Initial Charge Total Maximum Charge 5.50% 4.50% 1% 5.50% The above maximum charges are inclusive of STANLIB s upfront fees 1% 1% 0% 1% Annual Management Fees Maximum Charge 1.35% 1% 0.75% 1.35% Maximum Trail Fee 0.50% 0.25% 0.25% 0.50% * The annual management fees shown above do not include asset management fees that vary between 0.2% and 0.85% (fund dependent) * VAT is not applicable on STANLIB s Jersey domiciled funds. Documentation Required for Individuals STANLIB Limited and Standard Bank Fund Managers Jersey Limited require the following documents: Application form (to be completed by all applicants) Original certified copy of proof of identity (for each applicant). This must include a legible photograph and the signature of the applicant. Original or originally certified copy of verification of residential address (for each applicant) not older than three months. Tax Clearance Certificate * MP1423 * Balance of Payment * Proof of payment (Where an account holder requires a third party to have authority to sign on the investment, we will need a General Power of Attorney, proof of identity and verification of residential address for all signatories on the account) * These requirements are for South African investors making use of their R4 million allowance. * Original documentation required for all new clients Important Note: The value of units in the class funds depends upon the value of the underlying assets, which may fluctuate. The value of assets and income on those assets may also be affected by fluctuation in currency rates and, in some markets, exchange control and fiscal regulations. Hence the capital value of the units may fluctuate and is not guaranteed. The purchase of a unit in a currency fund or the other funds is not the same as placing funds on deposit with a bank. The Manager has no obligation to redeem units at the amount of the original investment. The funds do not pay dividends. Income is capitalised and can only be realised by selling units. Turn Around Times: New Business: 3 days, Switches: 2 days, Redemptions: 7 days to receive the proceeds. * Day means business day Please note: The full set of business rules is available on request 10

12 Disclaimer and statutory disclosure Collective Investment Schemes in Securities (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to the future. Participatory interests are priced daily using the forward pricing method. CIS are traded at ruling prices and can engage in borrowing and scrip lending. Commission and incentives may be paid and if so, would be included in the overall costs. Participatory interest prices are calculated on a net asset value basis, which is the total value of all assets in the Portfolio including any income accrual and less any permissible deductions from the Portfolio divided by the number of participatory interests in issue. Permissible deductions include brokerage, STT, auditor s fees, bank charges, trustee/custodian fees and the service charge levied by STANLIB Collective Investments Limited ( the Manager ). Different classes of units apply to these portfolios and are subject to different fees and charges. A schedule of fees and charges and maximum commissions is available on request from the company/scheme. Any capital gain realized on the disposal of a participatory interest in a collective investment scheme is subject to Capital Gains Tax (CGT). All portfolios are valued on a daily basis at 15h30, except for some Fund of Funds Portfolios and Feeder Fund Portfolios, which are valued at 17h00. Investments and Repurchases will receive the price of the same day if received prior to 15h30. The Portfolio Charges document (including the Performance Fee Frequently Asked Questions) is available on com < Contact details of Trustees: Absa Bank Ltd, 6th Floor, Absa Towers North (6E1), 180 Commissioner Street, Johannesburg, Telephone No. (011) *Global Funds (Foreign Currency): A schedule of fees and charges and maximum commissions is available on request from Standard Bank Fund Managers Jersey Limited, ( the Manager ). There is no sales tax applicable in Jersey. The portfolios of STANLIB Offshore Unit Trusts scheme are accumulation portfolios and do not distribute income. Please refer to the prospectus of this scheme for more details, a copy of which is available on request from STANLIB Collective Investments Limited, ( STANLIB ), the address of which is 17 Melrose Boulevard, Melrose Arch, 2196, South Africa. The registered office of the Manager is Standard Bank House, La Motte Street, St Helier, Jersey, Channel Islands. The Trustees are Capita Trust Company (Jersey) Limited, 12 Castle Street, St. Helier, Jersey, Channel Islands. Standard Bank Fund Managers Jersey Limited are regulated by the Jersey Financial Services Commission. The Decision Tree provided is for illustrative purposes and convenience only. STANLIB gives no warranty, expressed or implied, as to the accuracy, reliability, completeness, suitability or potential value of any information or outcomes suggested as a result of the use of the Decision Tree. STANLIB does not expressly or by implication propose that any information or suggested outcomes as a result of the use of the Decision Tree are appropriate to the particular investment objectives or needs of any existing or prospective client. The content of the Decision Tree and any information provided is of a general nature and is not based on any analysis of the investment objectives, financial situation or particular needs of any prospective client. It is therefore recommended that the client first obtain the appropriate legal, tax, investment or other professional advice and formulate an appropriate investment strategy that would suit the risk profile of the client prior to acting upon such information and to consider whether any recommendation is appropriate considering the client s own objectives and particular needs. STANLIB Collective Investments Limited Reg. No. (1969/003468/06) Liberty is a member of the Association for Savings and Investment of South Africa. The Manager is a member of the Liberty group of companies. Compliance number: 785ZB Paper As part of STANLIB s environmental policy this brochure has been printed on Magno Satin paper. Produced in Austria, this paper comprises 100% virgin fibre. At least 50% of the fibres used during the paper manufacturing process come from forests managed according to criteria established by the Forest Stewardship Council. Compliance with these standards was certified by an independent body. 11

13 STANLIB 17 Melrose Boulevard Melrose Arch 2196 PO Box 202 Melrose Arch 2076 T (SA Only) T +27 (0) E contact@stanlib.com W stanlib.com STANLIB Collective Investments Limited Reg. No. (1969/003468/06)