Offshore investment opportunities
Offshore funds - traditionally the preserve of expatriates and tax exiles - are becoming much easier for UK-based investors to invest in, giving them access to a greater range of sectors and regions.
In April, the Investment Management Association (IMA) opened the door to classification among its sectors to offshore funds meeting certain criteria.
Out of more than 300 applications received, it has so far admitted 175 funds domiciled in Luxembourg or Dublin. Another 100 plus are still to be assessed.
As Jane Lowe, director of markets at the IMA, explains, there's been steady demand from offshore funds for entry to the IMA sectors and a slice of the UK mainstream market.
"The number of offshore funds in IMA sectors should continue to rise, enabling investors to access a wider choice of funds and allowing offshore fund providers to market their funds on an equal footing with UK-domiciled funds," says Lowe.
Many funds come from large, well-known investment houses that already run a good range of onshore funds but now have the opportunity to bring more esoteric or specialist offshore offerings into the arena.
Thus the expanded IMA sectors now include Barings' Middle East and North Africa (MENA), Australia and Russia funds, among others, as well as Fidelity's Global Consumer Industries and Global Telecoms funds, and Invesco's Asia Consumer Demand and Asia Infrastructure offerings.
What are the attractions of these funds for investors?
Anna Sofat, managing director of IFA firm Addidi Wealth, is increasingly using offshore investments for wealthier or higher-risk clients. But for her the benefits are to do with choice and asset allocation rather than superior performance.
"We tend to look at these funds when we want specialist exposure to a particular region or sector but there's very little choice onshore or we don't like what's available," she explains.
"Performance compared with the onshore alternatives is not really important, but I imagine it's likely to become more so as offshore funds become more mainstream."
But Mark Dampier, head of research at Hargreaves Lansdown, is underwhelmed by the prospect of a stream of offshore funds attracting investors.
"There's a danger of too much choice, and it becomes increasingly difficult for us to get around to sorting the wheat from the chaff," he grumbles.
For an offshore fund to be included in the IMA classification it must be EU-domiciled, comply with Ucits regulations and be registered for sale in the UK.
For UK investors choosing their own investments, the main difference from investing in UK-listed funds is that if things go wrong and they have a complaint about the fund or want to claim compensation, they will have to contact the investor protection scheme in the country where the fund is registered.
Look out also for higher total expense ratios (TERs). Ed Moisson, director of fiduciary operations at Lipper, says: "Management fees for offshore and UK funds often look similar, but the additional back office costs for offshore funds tend to make them more expensive."
However, the initial charges at least are likely to be discounted in fund supermarkets.
This article was originally published in Money Observer - Moneywise's sister publication - in September 2010
The practice of locating your financial affairs (banking, savings, investments) in a country other than the one you’re a citizen of, usually a low-tax jurisdiction. The appeal of offshore is it offers the potential for tax efficiency, the convenience of easy international access and a safe haven for your money. However, offshore is governed by complex, ever-changing rules (such as 2005’s European Union Savings Directive) and, as such, is the exclusive province of the wealthy and high-net-worth individuals.
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.