Using a locally listed ETN to get exposure to the top global companies
Investing offshore sounds complicated sometimes it can be. Questions such as how to take Rands overseas, which countries to invest in and which shares and investments to allocate capital to, can scare South African investors from following through. FNBs innovation allows South African investors to gain exposure locally to international companies via listed ETN's. These inward listed international companies are some of the biggest by market capitalisation in the world and are familiar to most investors due to their sheer presence globally and impact on our daily lives. FNB will also assist with regards to which companies they suggest investing in through their stock picks and educational podcasts, making international diversification that little bit simpler. You can enjoy exposure to these companies by purchasing these ETN's from as little as R10 which represents the fractional exposure to these companies that can trade in excess of $ 3 000 providing immediate offshore exposure.
What is an ETN?
An Exchange traded note or ETN's are unsecured debt securities that track an underlying index of securities and trade on a major exchange like a stock. ETNs share similar characteristics to bonds, however, do not have fixed interest payments. Instead, the prices of ETNs fluctuate like stocks and offer similar exposure to buying and holding a company share.
How international exposure is gained:
You can buy these FNB ETN's listed on the JSE that provide direct exposure to an underlying company like, Tesla, Coke, Facebook and many more. You will have the option of 2 ETN's:
-
Amazon (short code - AMAZOQ) - the Q after the company name means the ETN will provide exposure to the company without currency risk
-
Apple (short code - APPLEC) - the C after the company name means the ETN will provide exposure to the company with currency risk
Deciding on option Q or C, depends on the preference of the investor. Investing in a foreign currency allows hedging against Rand depreciation and the option to further diversify a portfolio.
The importance of Global diversification has been magnified during the global pandemic. South African long-term investors need to align their offshore strategy with their investment goals. The JSE represents less than a percent of the global GDP and investors looking for international exposure need to do so in a manner that helps diversify risk through investments in companies and industries not offered on the JSE.
Investing offshore has been on the lips of most South Africans as of late, as the importance of diversifying risk globally has been magnified during this lockdown period. International markets have performed better than the JSE during the Global pandemic, with US tech stocks rallying, allowing those South African investors who have had exposure the ability to balance below average local performance. Although there is no guarantee that offshore investing will yield higher returns than the JSE, it is key to diversifying and balancing your portfolio risk.
Everyone has heard that saying, "don't put all your eggs in one basket", well the same applies to investing internationally. Putting all your eggs in the JSE may be limiting your investment growth potential and missing out on possible international growth opportunities.
Diversifying a share portfolio not only relates to different sectors and asset classes, but geographic locations as well. Should the JSE experience slow growth post the pandemic, investments internationally may balance the overall portfolio performance, allowing returns to be made. Hence the statement balancing your portfolio.
By limiting your investments to South Africa, all your risk is concentrated in one location. Should anything negative happen in South Africa, so your investments will underperform. Investing in different locations through FNB ETNs allows the reduction of concentration risk, meaning sounder investment strategies, allowing the best possible chance of generating sustainable returns in an affordable and efficient manner.
You can invest via the FNB Online Share Trading platform by searching FNB ETN or any other stockbroking platform that offers access to JSE listed instruments.
