Original Research

Raising the bar on the foreign portfolio to 25 per cent: Strategic implications for South African investors

David John Bradfield, Brian Munro
South African Journal of Economic and Management Sciences | Vol 18, No 3 | a822 | DOI: https://doi.org/10.4102/sajems.v18i3.822 | © 2015 David John Bradfield, Brian Munro | This work is licensed under CC Attribution 4.0
Submitted: 09 December 2013 | Published: 25 August 2015

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David John Bradfield, University of Cape Town, South Africa
Brian Munro, Cadiz Asset Management, South Africa

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 Regulation 28 of the Pension Funds Act now permits an increased allocation of 25 per cent to foreign investments. The regulation previously only permitted a 20 per cent allocation. Establishing the optimal foreign allocation for South African portfolio managers given the 25 per cent upper bound is an important consideration for strategic portfolio planning. In this paper we consider two methodological approaches to establish a strategic foreign allocation weight. Our first approach considers the strategic role of foreign investment in South African global balanced portfolios by using a mean-variance efficient frontier framework over a long-term period. We also implement a second assessment methodology that utilises a nonparametric procedure. Both the mean-variance and the non-parametric methodology yield compelling evidence for the foreign allocation to be set at the maximum allowable bound of 25 per cent.


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