What should you consider when selecting the type of offshore fund for you?
By putting some of your cash into offshore investments
, you hope to gain from the added diversification to your portfolio and protection from a volatile rand.
Funds are a great option. Just as in South Africa, there are so many out there to choose from. But before you can start honing in on which ones you want to invest in, you need to decide on what management style.
You have two options: Active management and passive management.
What is active management?
Active management is when a fund manager changes the asset allocation and mix of his portfolio to reflect his assessment of changing value and expected returns.
In essence, an active manager continually fine tunes his fund to try to get it to perform as best he can.
An active manager hopes this will result in him beating his fund’s benchmark index.
But this active management can lead to high costs due to the increased amount of trading. So expect to pay higher fees for this kind of fund in comparison to a passively managed fund.
Examples of actively managed funds are different unit trusts and mutual funds.
What is passive management?
The basis of passive management is that you can’t beat the market, especially taking into account with the costs of trying to do so.
So a passively managed fund tends to replicate an index. The costs are much lower in comparison with active funds.
Your return will reflect that of the benchmark index.
Examples of passively managed funds include exchange traded funds.
So there you have it, the key differences between offshore active and passive funds.
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