Blue Chip Issue 96

BLUE CHIP INVESTMENT |

BLUE CHIP INVESTMENT | Multi-assets Offshore 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 and co-chairman of Oaktree Capital Management. In a world obsessed with the next big thing, his steady message about value, price and patience is both refreshingly simple and powerfully relevant - especially when the data tells a story that defies conventional wisdom. Marks, the largest investor in distressed securities worldwide, is famously quoted as saying, “It’s not what you buy that matters - it’s what you pay for it.” Marks’s memos, which are posted on the Oaktree website, are essential reading for serious investors. Blending sharp insight with understated wit, these letters distil decades of hard-earned wisdom into accessible reflections on risk, value and investor behaviour. This brings us to the topic at hand: asset classes for typical multiasset products. Contrary to conventional wisdom - and perhaps to many investors’ expectations - domestic equity and property have outperformed global equity (as measured by the MSCI All World Index) over the past five years. The next best returns were delivered 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 provides some clues as to why South Africa has delivered a surprisingly robust set of investment returns relative to its more illustrious offshore counterparts over the past five years. Five years ago, during the Covid-19 pandemic, risk assets around the globe were sold off sharply, with emerging markets hit especially 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 pandemicinduced sell-off proved to be a remarkable buying opportunity, particularly in markets like South Africa, where asset prices had been heavily marked down. The deeper the discount, the greater the potential upside, and local investors who acted boldly were well rewarded. In South Africa, almost without exception, asset valuations across the board had fallen to multi-decade lows and the outlook was near-apocalyptic with domestic risk assets priced for disaster. Meanwhile, global fixed income, considered “safe”, offered wafer-thin yields and, in many cases, guaranteed negative real returns if held to maturity. In both instances, the deciding factor 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’s insights. His mantra, “Price is what you pay; value is what you get,” is central to how we invest. In every instance, we strive to pay less than what an asset is worth. It would therefore come as no surprise that since we launched our global multi-asset portfolios in January 2022, we didn’t rush to max out offshore exposure, despite the popular chorus suggesting that’s where returns would lie. The value we saw in South African assets was simply too compelling to ignore. Local assets have delivered solid performance, and we believe they still hold further opportunities. In an environment where the crowd is often focused on fear, we take Marks’s advice to heart: it’s not just about what you buy - it’s about what you pay for it. How can this be? For years, investors have been told that offshore exposure is the key to growing their retirement savings. This has been a constant siren song, and the message resonates easily in South Africa, where negative headlines about the local economy often dominate the narrative - and, by extension, investor sentiment. Often, markets are forward-looking, local assets have already priced in the bad news. Indeed, empirical evidence suggests that markets often overreact - discounting poor outlooks too heavily and becoming overly optimistic about ostensible rosy Kopano Makhu and Shaun Bruyns: Multi-Asset Co-Portfolio Managers, Mazi Asset Managers Mazi 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 consult a licensed or registered financial advisor for professional guidance tailored to your individual needs and investment objectives.

INVESTMENT | Offshore BLUE CHIP Offshore tax regulations: implications for South African investors, business owners and emigrants In addition to moving their wealth, many South Africans have physically moved overseas or own offshore businesses. With South Africans being able to invest up to 45% of their retirement savings, and up to R11-million in total per calendar year offshore, many are taking the opportunity to move their investments into foreign jurisdictions - a sound move that helps to mitigate local risks and accrue the benefits of a diversified portfolio. While investing offshore may have its benefits, investors need to bear in mind that foreign tax regulations are multifaceted and require careful consideration. Navigating offshore tax can be complex and requires a thorough understanding of South African laws as well as the regulations of the investment jurisdictions. To start with, in terms of our Income Tax Act, South African residents are taxed locally on all income earned abroad. This income includes dividends, interest, rental income and capital gains, and must be declared to South African Revenue Service (SARS) in annual tax returns. With income earned offshore already incurring local taxes, South Africans with foreign financial interests should be aware that the tax laws and treaties in international investment destinations can have double taxation implications. It is critical to take existing legislation into account, remain abreast of amendments and act early to avoid penalties. Navigating offshore tax can be complex and requires a thorough understanding of South African laws. As an example, recent updates to the UK’s non-domicile tax regime did away with long-standing preferential tax structures as from 6 April 2025. More than 80% of the UK non-domiciles polled by Oxford Economics early in 2025 said that the changes are a significant motivation for leaving the UK for other jurisdictions that still offer preferential tax dispensations. The estimated 200 000 South Africans living in the UK, and those considering moving there in the next four years, should seek professional advice on protecting 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 South African resident holds more than 50% of the shares or voting rights in a foreign company, then that company is considered a CFC. If any portion of the income earned by the CFC flows to this shareholder, it is subject to taxation in South Africa, regardless of whether it is repatriated. Investors need to bear in mind that foreign tax regulations are multifaceted and require careful consideration. Yet more legislation to bear in mind incudes the Foreign Account Tax Compliance Act and Common Reporting Standard. These international agreements facilitate the exchange of tax-related information between countries and are aimed at increasing transparency and combating tax evasion. South African residents with substantial offshore assets may find themselves subjected to increased scrutiny as tax authorities collaborate on these initiatives. The good news is that local taxpayers may benefit from foreign tax credits designed to mitigate the effects of double taxation. If South African residents pay tax to foreign governments on their offshore earnings, they may claim credits for those taxes against their South African tax liability, provided that the correct procedures have been followed. An understanding of, and compliance with, domestic and offshore tax laws, CFC rules, foreign tax credits and international reporting standards, combined with proper planning, can help South Africans to manage their offshore investments more profitably. Partnering with professionals experienced in local and international tax, investment and company laws is an essential step towards securing a sound financial future. Lance Lawson, Business Development Consultant, Sovereign Trust SA www.bluechipdigital.co.za 39