“Shouldn’t we have more offshore exposure?”

Investors continue to express concern regarding the state of South Africa’s fiscal and monetary issues. Despite the added volatility that can come by an increase in offshore exposure for a rand-denominated investor, investors are asking the question as to how they can increase their offshore exposure.

Some investment professionals have been very vocal about the state of affairs in South Africa and have openly promoted taking your money offshore whilst others have cautioned against taking such an extreme view at this point in the market cycle.

Where does this leave investors? What are they to believe?

The last five years have been some of the toughest years in decades

The local vs offshore debate is likely to be heavily debated for some time to come whilst in the meantime pension funds are restricted to the Regulation 28 limitations. Over the last five years, local multi-asset high equity funds (commonly referred to as balanced funds) have struggled to deliver the returns that investors have traditionally become accustomed to. This period of underperformance has been extreme and unsurprisingly it has led to a large outflow from multi-asset funds into cash and income funds.

The chart below shows the inflow of money into cash and fixed income funds over the past several years whilst the trend towards multi-asset funds have been declining since 2014.

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