Linked-product company, Old Mutual Investment Services (OMIS) will be launching a range of international funds from July 1, when South Africans should be allowed to hold a certain amount of money in foreign currency, John Bryant, executive officer of OMIS, announced last week.

OMIS is an unlisted public company launched about a year ago and 100 percent held by Old Mutual. It offers the full range of unit trusts in linked products to those who have at least R50 000 to invest.

From July 1, OMIS will be offering a range of about 20 international funds managed not only by Old Mutual’s international asset management division (OMAM) but also by Prudential and Fidelity International, through Standard Bank.

“We are also talking to a couple of other firms,” Bryant said.

He said OMIS does not consider it appropriate in the early stages of exchange control relaxation for South African residents to be offering the more exotic retail products available internationally. Initially OMIS’s range will consist of general equity and bond funds, and the general equity funds will be invested worldwide or in an established territory such as North America, Europe, Hong Kong or Japan.

The main purpose of offering international investment opportunities is to offer OMIS’s clients the ability to lower their risk, and this would not be achieved through investing in the more volatile sectors or territories. Bryant says South African investors with all their money in the local stockmarket are already exposed to a high level of country risk.

The basis for selecting OMAM, Prudential and Fidelity is their reputation as major institutions and their long and consistent record of beating the relevant indices. Bryant says while foreign investment is still new, and local investors and intermediaries are apprehensive about the range of choices in foreign markets, it is more understandable to use funds that consistently beat certain benchmarks rather than try to pick top performers using a range of criteria.

The cost of investing in overseas funds is higher than investing only in the local market. Investors will probably bear an initial maximum charge of about 0,75 percent on the amount invested. Bryant says at the moment South African funds may only levy an annual maximum management fee of one percent. For international management companies, 1,5 percent a year is considered justified if they are investing in a range of different countries because transaction costs and statutory requirements can vary widely.

Bryant says investors should consider carefully why they are investing overseas. The major justification for international investment is risk diversification, both in currencies and countries. Local investors who move funds overseas with the intention to achieve higher investment returns could be disappointed.

International income funds currently show a yield of about eight percent, compared to the 16 percent or so available in South Africa, although rand depreciation could enhance returns to South Africans investing in funds denominated in dollars or sterling.

Bryant also announced that OMIS would be offering intermediaries an on-line service to obtain reports and make changes to clients’ portfolios. The service is made available through its existing Web page on www.omis.co.za, but access to this site is safeguarded.

Only licensed intermediaries are given passwords and client data is a secured facility - in other words, it is protected from hackers. The site also enables intermediaries to use MoneyMate figures and graphs. The data should assist intermediaries when advising clients on switching between funds.

Technology is a vital area of the linked products industry, Bryant says. Clients now expect not only flawless administration of their portfolios but also 24-hour on-line service.