Blue Chip Issue 96

BLUECHIPINVESTMENT |

BLUECHIPINVESTMENT | Multi-assetsOffshore isn’t always greener:who would have thought it?When it comes to investing, some voices cut through the noise with rare clarity.One of them belongs to Howard Marks, co-founder andco-chairman of Oaktree Capital Management. In a worldobsessed with the next big thing, his steady messageabout value, price and patience is both refreshinglysimple and powerfully relevant – especially when the data tellsa story that defies conventional wisdom. Marks, the largestinvestor in distressed securities worldwide, is famously quotedas saying, “It’s not what you buy that matters – it’s what you payfor it.” Marks’s memos, which are posted on the Oaktreewebsite, are essential reading for serious investors. Blendingsharp insight with understated wit, these letters distil decades ofhard-earned wisdom into accessible reflections on risk, value andinvestor behaviour.This brings us to the topic at hand: asset classes for typical multiassetproducts. Contrary to conventional wisdom – and perhapsto many investors’ expectations – domestic equity and propertyhave outperformed global equity (as measured by the MSCI AllWorld Index) over the past five years. The next best returns weredelivered by domestic fixed income and inflation-linked bonds.In stark contrast, global fixed income has been the clear laggard,posting negative returns in rand terms over the same period.Figure 1. Five-year asset class total returns measured in rands.outlooks. This is central to Howard Marks’s message and providessome clues as to why South Africa has delivered a surprisinglyrobust set of investment returns relative to its more illustriousoffshore counterparts over the past five years.Five years ago, during the Covid-19 pandemic, risk assetsaround the globe were sold off sharply, with emerging markets hitespecially hard as capital rushed back to developed economies.At the time, a return to normality felt uncertain – even implausible.But return to normal we did. In hindsight, that pandemicinducedsell-off proved to be a remarkable buying opportunity,particularly in markets like South Africa, where asset prices hadbeen heavily marked down. The deeper the discount, the greaterthe potential upside, and local investors who acted boldlywere well rewarded.In South Africa, almost without exception, asset valuationsacross the board had fallen to multi-decade lows and theoutlook was near-apocalyptic with domestic risk assets priced fordisaster. Meanwhile, global fixed income, considered “safe”,offered wafer-thin yields and, in many cases, guaranteed negativereal returns if held to maturity. In both instances, the decidingfactor for long-term success wasn’t the label on the asset class,but the price paid for it.At Mazi Asset Management, we apply Howard Marks’sinsights. His mantra, “Price is what you pay; value is what youget,” is central to how we invest. In every instance, we strive to payless than what an asset is worth. It would therefore come as nosurprise that since we launched our global multi-asset portfoliosin January 2022, we didn’t rush to max out offshore exposure,despite the popular chorus suggesting that’s where returns wouldlie. The value we saw in South African assets was simply toocompelling to ignore.Local assets have delivered solid performance, and we believethey still hold further opportunities. In an environment where thecrowd is often focused on fear, we take Marks’s advice to heart: it’snot just about what you buy – it’s about what you pay for it.How can this be? For years, investors have been told that offshoreexposure is the key to growing their retirement savings. This hasbeen a constant siren song, and the message resonates easily inSouth Africa, where negative headlines about the local economyoften dominate the narrative – and, by extension, investor sentiment.Often, markets are forward-looking, local assets have alreadypriced in the bad news. Indeed, empirical evidence suggeststhat markets often overreact – discounting poor outlooks tooheavily and becoming overly optimistic about ostensible rosyKopano Makhu and Shaun Bruyns:Multi-Asset Co-Portfolio Managers, Mazi Asset ManagersMazi Asset Management is an authorised Financial Services Provider. The information contained in this article is for informational purposes only and should not be construed as financial advice. Please consulta licensed or registered financial advisor for professional guidance tailored to your individual needs and investment objectives.

INVESTMENT | OffshoreBLUECHIPOffshore tax regulations:implications for South African investors,business owners and emigrantsIn addition to moving their wealth, many South Africans have physically moved overseas or ownoffshore businesses.With South Africans being able to invest up to 45%of their retirement savings, and up to R11-million intotal per calendar year offshore, many are taking theopportunity to move their investments into foreignjurisdictions – a sound move that helps to mitigate local risks andaccrue the benefits of a diversified portfolio.While investing offshore may have its benefits, investors needto bear in mind that foreign tax regulations are multifaceted andrequire careful consideration. Navigating offshore tax can be complexand requires a thorough understanding of South African laws aswell as the regulations of the investment jurisdictions.To start with, in terms of our Income Tax Act, South Africanresidents are taxed locally on all income earned abroad. This incomeincludes dividends, interest, rental income and capital gains, andmust be declared to South African Revenue Service (SARS) in annualtax returns.With income earned offshore already incurring local taxes,South Africans with foreign financial interests should be aware thatthe tax laws and treaties in international investment destinationscan have double taxation implications. It is critical to take existinglegislation into account, remain abreast of amendments and act earlyto avoid penalties.Navigating offshore tax canbe complex and requiresa thorough understandingof South African laws.As an example, recent updates to the UK’s non-domicile taxregime did away with long-standing preferential tax structures asfrom 6 April 2025. More than 80% of the UK non-domiciles polledby Oxford Economics early in 2025 said that the changes are asignificant motivation for leaving the UK for other jurisdictionsthat still offer preferential tax dispensations. The estimated 200000 South Africans living in the UK, and those considering movingthere in the next four years, should seek professional advice onprotecting their UK-based wealth from these changes to inheritance,trust and income taxes, among others.South Africa’s Controlled Foreign Company (CFC) rules,which aim to prevent tax avoidance through foreign entities,are another significant factor to consider. Essentially, if a SouthAfrican resident holds more than 50% of the shares or voting rightsin a foreign company, then that company is considered a CFC. Ifany portion of the income earned by the CFC flows to this shareholder,it is subject to taxation in South Africa, regardless of whetherit is repatriated.Investors need to bear in mindthat foreign tax regulationsare multifaceted and requirecareful consideration.Yet more legislation to bear in mind incudes the ForeignAccount Tax Compliance Act and Common ReportingStandard. These international agreements facilitate the exchangeof tax-related information between countries and are aimed atincreasing transparency and combating tax evasion. South Africanresidents with substantial offshore assets may find themselvessubjected to increased scrutiny as tax authorities collaborate onthese initiatives.The good news is that local taxpayers may benefit from foreigntax credits designed to mitigate the effects of double taxation. IfSouth African residents pay tax to foreign governments on theiroffshore earnings, they may claim credits for those taxes againsttheir South African tax liability, provided that the correct procedureshave been followed.An understanding of, and compliance with,domestic and offshore tax laws, CFC rules, foreigntax credits and international reporting standards,combined with proper planning, can help SouthAfricans to manage their offshore investmentsmore profitably. Partnering with professionalsexperienced in local and international tax,investment and company laws is anessential step towards securing a soundfinancial future.Lance Lawson, Business DevelopmentConsultant, Sovereign Trust SAwww.bluechipdigital.co.za39