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Investing Offshore

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					Investing Offshore

Investing Offshore: What percentage of one’s assets should be invested offshore?
STANLIB offers a comprehensive range of international portfolios across different sectors, asset classes and risk profiles. These portfolios give investors access to global asset management expertise and the ability to invest in a range of professionally managed investments to match their risk profiles and meet their personal financial goals. Clients are able to access international markets and assets via STANLIB’s range of Rand Denominated and Offshore Allowance portfolios. (Please visit www.stanlib.com for additional product information).

In order to maximise the benefits of diversification when investing it is advisable that investors hold a portion of their investment offshore. The question is what percentage of an investor’s assets should be invested offshore. STANLIB conducted research to ascertain what the optimal percentage of an investors portfolio should be invested offshore relative to their risk profile.

STANLIB’s research focused on the period from January 1994 to March 2006. The aim of the research was to ascertain what mix of local and offshore assets resulted in the best return per unit of risk. In other words, what was the optimal mix of local and offshore assets over this 12 year period, a period which includes both massive Rand depreciation and massive Rand appreciation.

Understanding Risk and Return The relationship between risk and return is one of the essential concepts to understand when investing - and it is unique for every investor. While some investors may be willing to withstand a higher level of market volatility, others prefer a more conservative approach. What is crucial is undertstanding your risk profile and how it translates into a disciplined approach to investing.

Risk is generally equated with the potential of an investment to generate financial loss. Return is the usual measure of performance. As investments that offer higher potential for total return generally carry a higher potential for risk, informed investors don’t simply seek to maximise returns. Instead, they focus on risk-adjusted returns, that is, the potential returns that correspond to the level of risk with which they are comfortable.

Methodology
The optimal mix of domestic and offshore assets was determined as follows:
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Step 1 The return/risk profile of a typical domestic only portfolio was calculated for the period 1994 to 2006. This portfolio was 60% in equities benchmarked against the All Share Index, 25% in bonds benchmarked against the All Bond Index, 10% in listed property shares benchmarked against the SA Listed Property Index and 5% in cash.

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Step 2 The return/risk profile of a pure international portfolio was calculated for the period 1994 to 2006. The asset allocation mix was the same as in scenario one, but with different benchmarks: 60% in equities benchmarked against the MSCI World Index, 25% in offshore bonds benchmarked against the JP Morgan Global Bond Index, 10% in offshore listed property shares benchmarked against the EPRA Nareit Global Property Index and 5% in 3 month dollar cash.

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Step 3 An optimal mix of domestic and international assets was calculated using STANLIB’s quantitative asset allocation model, aiming to maximise return per unit of risk. The optimal mix of 69.5% in local investments and 30.5% invested offshore resulted in a return of 17 .3% (a little lower than the domestic portfolio (17 .9%) but much higher than the pure offshore portfolio (15.9%), but most importantly with a risk of only 11.4%, much lower than the domestic portfolio (13.8%) and pure offshore portfolio (17 .6%). From the results of the model, it is clear that the main benefit to holding offshore assets is a reduction in risk through increased diversification.

20 18 16 14 12 10 8

Ave. return 17 .9% Ave. return Risk 13.8% 15.9%

Risk 17 .6%

Ave. return 17 .3%

Risk 11.4%

100% domestic STEP 1

100% offshore STEP 2

70% domestic 30% offshore STEP 3

The optimal mix of assets, assuming a balanced offshore portfolio mandate of 60% in equities, 25% in bonds, 10% in property and 5% in cash, for the different risk profiles has been determined as follows:

RISK PROFILE Conservative Moderately Conservative Moderate Moderately Aggressive Aggressive

DOMESTIC 94% 84% 79% 67% 60%

OFFSHORE 6% 16% 21% 33% 40%

Cadiz Research
It is important to note that research conducted by Cadiz Financial Strategists over a much longer period of 79 years (dating back to 1925 and ending in 2005) produced an almost identical result. The optimal combination of offshore/local assets was 30.9% in offshore assets and 69.1% in domestic assets. More details regarding the Cadiz research are available from STANLIB Retail Investment Marketing.

So the more conservative the SA investor is, the less need there is for offshore investing, at least from a point of view of return per unit of risk.

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Statutory disclosure and general terms and conditions
Collective investment schemes in securities 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. An investment in the participations of a collective investment scheme in securities is not the same as a deposit with a banking institution. 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, UST, auditor’s fees, bank charges, trustee/ custodian fees and the service charge levied by STANLIB Collective Investments Limited (“the Manager”). Where exit fees are applicable, participatory interests are redeemed at the net asset value where after the exit fee is deducted and the balance is paid to the investor. A Portfolio of a collective investment scheme in securities may borrow up to 10% of the market value of the Portfolio to bridge insufficient liquidity as a result of the redemption of participatory interests, and may also engage in scrip lending. Where different classes of participatory interests apply to certain Portfolios, they would be subject to different fees and charges. A schedule of fees and charges and maximum commissions is available on request from the Manager. Commission and incentives may be paid and if so, would be included in the overall costs. The exposure limit to a single security in this Portfolio can be greater than is permitted for other Portfolios in terms of the Collective Investment Schemes Control Act, 2002 (“the Act”). Details are available from the Manager. A Fund of Funds Portfolio only invests in other collective investment schemes, which levy their own charges, which could result in a higher fee structure for these portfolios. A Feeder Fund Portfolio only invests in the participatory interests of a single Portfolio of a collective investment scheme apart from assets in liquid form. The Manager reserves the right to close certain Portfolios from time to time in order to manage them more efficiently. More details are available from the Manager. Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. The Manager undertakes to repurchase participatory interests at the price calculated according to the requirements of the Collective Investment Schemes Control Act, 2002, and on the terms and conditions of the relevant Deeds. Payment will be made within 14 days of receipt of a valid repurchase form. Any capital gain realised on the disposal of a participatory interest in a collective investment scheme is subject to Capital Gains Tax (CGT). The Manager is obliged to report on the weighted average cost method for CGT purposes. 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 Manager is a member of the Association of Collective Investments. The Portfolio Charges document (including the Performance Fee Frequently Asked Questions) is available on www.stanlib. com (“Investment for Individuals” section). Where fees are not accrued daily, the fee accrual is lagged and rolling measurement periods are used, certain participatory interest holders may carry a lower proportion of the performance fee relative to performance enjoyed, whilst other investors may carry a higher proportion of the performance fee relative to performance enjoyed. Where underlying portfolios charge implicit performance fees (i.e. implicit in their unit prices), participatory interest holders may carry these performance fees regardless of whether the top-tier portfolio or mandate has out-performed its own benchmark. Contact details of Trustees: Absa Bank Ltd, 6th Floor, Absa Towers North (6E1), 180 Commissioner Street, Johannesburg, 2001. Telephone No. (011) 350-4000.

STANLB Collective Investments Limited Only appointed and approved representative in South Africa PO Box 202 Melrose Arch, 2076 South Africa Telephone +27 11 448 6000 Contact Centre 0860 123 003 www.stanlib.com Registration number: 1969/003468/06

Standard Bank Fund Managers Jersey Limited Standard Bank house 47-49 La Motte Street, St Helier Jersey JE48XR, Channel Islands Telephone +44 (1534) 881 188 Fax +44 (1534) 881 119 Trustee Capita Trust Company (Jersey) Ltd Victoria Chambers 1/3 The Esplanade Liberation Square St Helier, Jersey

Compliance No. M273O9

06/07

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