IOL Personal Finance - 1st Quarter 2023 - RAGING BULL AWARDS SOUVENIR EDITION

RAGING BULL AWARDS

SOUVENIR EDITION RAGING BULL AWARDS

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MEET PALESA DUBE PLANNER OF THE YEAR

PSG dons the investment crown

At the recent Raging Bull Awards gala dinner in Cape Town, PSG, who have frequently featured in the top three in past years, cruised in ahead of last year’s winners, Ninety One, to take the crown as South African Manager of the Year.

RAGING BULL AWARDS

6

MARTIN HESSE

INVESTMENT PERFORMANCE REWARDED

Welcome to the first magazine of 2023 in its new free digital format. While we have pared it down by about a third, from 76 to about 50 pages, we aim to retain the quality of content, which, as always, has been on managing your money and growing your wealth. And we’re retaining the useful unit trust performance and tax data in the Databank at the back.

This edition of the magazine is almost entirely devoted to the recent Raging Bull Awards, which rewarded unit trust performance to the end of 2022. The eight trophy-winning funds are profiled in the form of interviews with the fund managers, who give insights into the investment processes they employ and their views on the markets going forward.

While the volatile markets in 2022 had a negative effect overall on investment performance, some fund managers came through with flying colours. Lucky perhaps, but the riskadjusted awards, determined through the PlexCrown Fund Rating methodology (see Databank for details), rate performance over periods up to five years. These awards are a truer indicator of a manager’s consistency and skill.

Congratulations to SA Manager of the Year, PSG Asset Management, which stuck to its convictions during tough times and is now reaping the rewards (and awards). Congrats too to Offshore Manager of the Year, Credo, a London-based investment firm founded by South Africans, which has offices in South Africa.

The magazine isn’t solely about the Raging Bulls. I explore a claim by financial planner Wynand Gouws, backed by thorough calculations, that retirement funds may not be an ideal vehicle to use when saving for retirement because the post-retirement tax consequences can outweigh the pre-retirement tax breaks. And we profile the Financial Planning Institute’s Financial Planner of the Year for 2022/23, the delightful and accomplished Palesa Dube.

VOLUME 94

1st QUARTER 2023

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AND THE WINNER IS... PSG

After coming close a number of times, and magnificently rebounding after a couple of tough pre-Covid years, PSG Asset Management took the crown as Best South African Manager of the Year at the recent Raging Bull Awards. Martin Hesse was there.

AT the Raging Bull Awards gala dinner on Tuesday 28 February, PSG Asset Management emerged ahead of last year’s winner, Ninety One, to clinch the coveted title of South African Manager of the Year. The awards were for investment performance to the end of 2022.

The awards ceremony is hosted annually by Personal Finance in partnership with data providers ProfileData and PlexCrown Fund Ratings. The event was sponsored this year by the JSE, PSG and Mellville Douglas. It recognises top performance in the unit trust industry, which has grown exponentially since its launch in 1997.

After scaling down to a streamed video presentation for two years as a result of the Covid-19 pandemic, the event reverted to its lavish gala dinner format – a calendar highlight for the asset management industry – at Pigalle Restaurant in Green Point, Cape Town. The guest speaker for the evening was SARS Commissioner Edward Kieswetter.

The runners-up for the South African Manager of the Year were Ninety One in second place and H4 Collective Investments in third place (see detailed breakdowns below).

The award for Offshore Manager of the Year went to Credo, a London-based global

investment management business with offices in South Africa, which markets three offshore funds to South African investors.

Eight Raging Bull Awards (trophies) and 30 Raging Bull Certificates went to individual funds in local and offshore categories for straight performance over three years to the end of 2022 and for risk-adjusted performance over five years.

The aim of the awards, apart from recognising outstanding achievement in the industry, is to guide investors to unit trust funds that deliver reliable, sustainable returns without undue risk, which is in line with the ongoing aim at Personal Finance: to provide

Anet Ahern, chief executive officer of PSG Asset Management, receives the Raging Bull trophy for South African Manager of the Year from Personal Finance editor Martin Hesse. She is joined by her two chief investment officers, Greg Hopkins (left) and John Gilchrist.

Photo: Ian Landsberg

readers with credible, jargon-free information on financial services and products to better manage their day-to-day financial affairs and grow their wealth.

‘Hugely prestigious’

After receiving the SA Manager of the Year Award, chief executive of PSG Asset management, Anet Ahern said: “We’re very excited, we think this is a hugely prestigious award. What makes it extra special for us is that we've seen some very challenging years in the markets and it has been a difficult environment in which to manage money, so it’s really gratifying to be recognised for our success during a difficult time. Also, the award requires a manager to have expertise across global, fixed-income, multi-asset and equity investments, so it's wonderful to be recognised for the work we've done to build those capabilities, and it's a whole team effort, so I'm very proud of the team and am pleased they can share in this recognition.”

On the advantage the award would give PSG, Ahern said: “I think it wouldn’t so much affect clients who have entrusted us with their funds already, but perhaps for people who need a little convincing that we have a broad-based and globally integrated set of capabilities, I think this would be a welcome nod. So for prospective clients, this would tell them we’re a firm with a good solid team and they can invest assets across the globe and across different asset classes.”

Ahern said investors needed to understand that an investment process predicated on long-term gains would sometimes disappoint in the short term. “When you’re an active manager, it means that from time to time you’re going to be too early [in buying or selling an asset] or you might even be wrong, and at those times, that is what defines you. We had a tough time going into Covid. We had a bad 2018 and 2019. But the important thing here is that we stuck to our process, we took the right decisions, and we had the backing of a team and a group. It’s hard to go it alone, and if you don’t have conviction in your process and your positions, the market will wack you from side to side. You have to be able to keep your head and make the right decisions, no matter what the circumstances.”

THE WINNING MANAGERS

PSG Asset Management

PSG scored an excellent (weighted) average of 4.523 PlexCrowns across its nine qualifying funds. Five of these funds achieved five PlexCrowns: the PSG Global Flexible Feeder Fund, PSG Diversified Income Fund, PSG Income Fund, PSG Balanced Fund and PSG Stable Fund. Three funds received four PlexCrowns, and one achieved three PlexCrowns, which represents the average risk-adjusted performance for its peer group. The nine funds held a total of R35.6 billion in assets under management at the end of 2022, the three largest funds being the PSG Flexible Fund (R11.3bn), PSG Balanced Fund (R9.7bn) and PSG Equity Fund (R6bn).

Ninety One

Last year's winning manager scored significantly lower than PSG, with a weighted average of 3.734 PlexCrowns across its 18 qualifying funds. One fund, the Ninety One Global Strategic Managed Feeder Fund, scored five PlexCrowns; 10 funds scored four PlexCrowns, four scored three PlexCrowns, while three funds scored below the peer average of three PlexCrowns. Ninety One's 18 qualifying funds held a total of R226.9bn in assets at the end of 2022. The manager's three largest funds were the Ninety One Opportunity Fund (R60.8bn), Ninety One Managed Fund (R28.8bn) and the Ninety One Global Franchise Feeder Fund (R27.6bn).

H4 Collective Investments

H4 Collective Investments is the management company for the H4 and Citadel ranges of retail funds. It had 12 qualifying funds, which had a weighted average of 3.673 PlexCrowns. One fund, the H4 Diversified Fund, scored five PlexCrowns; five funds scored four PlexCrowns, another five scored three PlexCrowns, and one scored two PlexCrowns. The manager held R23.59bn in assets under management at the end of 2022. The three largest funds were the Citadel SA Bond H4 Fund (R4.2bn), H4 Diversified Fund (R4.1bn) and Citadel SA Income H4 Fund (R3.5bn).

Credo

The winning offshore manager had three qualifying funds: one of these (the UK-pound-denominated Credo Global Equity Fund) scored five PlexCrowns; the other two - a flexible multi-asset fund and a US-dollar-denominated equity fund - scored four PlexCrowns. Credo was closely followed in the offshore category by Allan Gray and

Foord.

Sangeeth Sewnath, deputy managing director of Ninety One's Africa Client Group, collects the first runner-up certificate from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg

Philip Bredenhann, managing director of H4 Collective Investments, collects the second runner-up certificate from Personal Finance Editor Martin Hesse.

Photo: Ian Landsberg

Andrew Cormack, head of investment distribution at Credo's Johannesburg office, with the trophy for Best Offshore Manager.

Photo: Ian Landsberg

RAGING BULL CERTIFICATE AND AWARD WINNERS for results

to December 31, 2022

CERTIFICATES

STRAIGHT PERFORMANCE OVER THREE YEARS

Best South African Equity Resources Fund

Coronation Resources Fund

Best South African Equity Mid- and Small-Cap Fund

Sanlam Investment Management Small Cap Fund

Best South African Multi-Asset Flexible Fund

Flagship IP Flexible Value Fund

Best South African Multi-Asset Low Equity Fund

PSG Multi-Management Cautious Fund of Funds

Best South African Multi-Asset Medium Equity Fund

Nedgroup Investments Opportunity Fund

Best South African Multi-Asset High Equity Fund

Aylett Balanced Prescient Fund

Best South African Multi-Asset Income Fund

PSG Diversified Income Fund

Best South African Interest-Bearing Short-Term Fund

Sasfin BCI High Yield Fund

Best South African Interest-Bearing Variable-Term Fund

Portfoliometrix BCI SA Bond Fund

Best South African Real Estate Fund

Harvard House BCI Property Fund

Best (SA-Domiciled) Global Multi-Asset Flexible Fund

PSG Global Flexible Feeder Fund

Best (SA-Domiciled) Worldwide Multi-Asset Flexible Fund

Blue Quadrant Worldwide Flexible Prescient Fund

Best (FSCA-Approved) Offshore Europe Equity General Fund

STANLIB European Equity Fund

Best (FSCA-Approved) Offshore United States Equity General Fund

Dodge & Cox US Stock Fund

Best (FSCA-Approved) Offshore Far East Equity General Fund

Franklin India Fund

Best (FSCA-Approved) Offshore Global Fixed-interest Bond Fund

Coronation Global Strategic USD Income Fund

Best (FSCA-Approved) Offshore Global Real Estate General Fund

First World Hybrid Real Estate PLC

RISK-ADJUSTED PERFORMANCE OVER FIVE YEARS

Best South African Multi-Asset Low Equity Fund

Amplify SCI Wealth Protector Fund

Best South African Multi-Asset Medium Equity Fund

Nedgroup Investments Opportunity Fund

Best South African Multi-Asset High Equity Fund

Aylett Balanced Prescient Fund

Best South African Multi-Asset Income Funds

MI-PLAN IP Enhanced Income Fund

Best South African Interest-Bearing Short-Term Fund

PSG Income Fund

Best South African Interest-Bearing Variable-Term Fund

Absa Bond Fund

Best South African Real Estate Fund

Harvard House BCI Property Fund

Best (SA-Domiciled) Global Equity General Fund

Fairtree Global Equity Prescient Feeder Fund

Best (SA-Domiciled) Global Multi-Asset Low Equity Fund

Coronation Global Capital Plus [ZAR] Feeder Fund

Best (SA-Domiciled) Global Multi-Asset High Equity Fund

Ninety One Global Strategic Managed Feeder Fund

Best (SA-Domiciled) Global Multi-Asset Flexible Fund

Global Marathon IP Fund

Best (SA-Domiciled) Global Real Estate Fund

Reitway BCI Global Property Feeder Fund

Best (SA-Domiciled) Worldwide Multi-Asset Flexible Fund

Blue Quadrant Worldwide Flexible Prescient Fund

AWARDS

STRAIGHT PERFORMANCE OVER THREE YEARS

Best South African Equity General Fund

Investec BCI Dynamic Equity Fund

Best South African Interest-Bearing Fund

PSG Diversified Income Fund

Best (SA-Domiciled) Global Equity General Fund

PSG Global Equity Feeder Fund

Best (FSCA-Approved) Offshore Global Equity Fund

Anchor Global Equity Fund

RISK-ADJUSTED PERFORMANCE OVER FIVE YEARS

Best South African General Equity Fund

Counterpoint SCI Value Fund

Best South African Multi-Asset Equity Fund

Amplify SCI Wealth Protector Fund

Best South African Multi-Asset Flexible Fund

Bateleur Flexible Prescient Fund

Best (FSCA-Approved) Offshore Global Asset Allocation Fund

Investec World Axis Cautious Fund

MANAGER OF THE YEAR AWARDS

(FOR RISK-ADJUSTED PERFORMANCE OVER FIVE YEARS)

Offshore Manager of the Year: Credo

South African Manager of the Year (3rd place): H4 Collective Investments

South African Manager of the Year (2nd place): Ninety One

South African Manager of the Year: PSG Asset Management

INVESTEC BCI DYNAMIC EQUITY FUND

Which counters have stood out for the fund during that period?

Our top contributor to the overall return was Montauk Renewables. This is a R27bn JSE and Nasdaq-listed company that produces renewable natural gas (from landfill sites in the US). It operates within a complicated legal framework. I believe the complexity of this framework precluded many local fund managers from owning or even considering it.

INVESTEC’S Dynamic Equity Fund, marketed under a Boutique Collective Investments licence, was launched in 2015. Almost entirely invested in South African listed shares (including listed property shares), it delivered an annualised 25.6% a year over the three-year period under review. In contrast, the FTSE/JSE All Share Index (total return) returned 12.72%, the FTSE/JSE Mid/SmallCap Index 9.5%, and the fund’s benchmark, the FTSE/JSE Capped Shareholder Weighted Index (Swix) 10.1%.

Portfolio manager Barry Shamley responded to the following questions from Personal Finance:

Please state the objectives of the fund and describe your investment approach.

BS: The objective of the Investec BCI Dynamic Equity Fund is to provide investors with capital growth and income over the long term. The fund employs a primarily "bottom-up" investment approach, attempting to identify equities that offer above-average returns.

While we invest across the full spectrum of the JSE, we place emphasis on identifying

emerging companies. Our disciplined approach may result in us being under or overweight in terms of certain sectors over time and therefore our performance will not always be correlated with our benchmark, the Capped Swix. We have a value bias but are style agnostic, and prefer buying companies where there is a large margin of safety in the valuation. We do invest in growth companies, but we are price sensitive (we do not like to pay up for growth).

We invest across the market-cap spectrum, with the flexibility to invest in smaller companies that are generally under researched and often undervalued.

To what do you attribute the fund's excellent performance over the past three years?

There was a significant rerating of smaller and medium-sized companies from extremely depressed valuations coupled with a rebound in earnings. We also benefited (as a country and a shareholder) from strong commodity prices over the past few years.

This trickled down into the broader economy as tax collections increased and our currency benefited from an improved trade balance.

While we have reduced our holding on valuation concerns we still recognise a long runway of growth for this business as they develop and expand their manure digester business. Other notable contributors were in the resources and precious metals space, including Royal Bafokeng Platinum, Pan African Resources, Gold Fields and Afrimat. Several investment holdings contributed substantially to our gains, notably HCI and Sabvest, led by two of South Africa’s top capital allocators, Johnny Copelyn and Chris Seabrooke. Lastly we benefited from a number of our companies being taken private at premiums to market.

How are you positioning the fund going forward, considering worries about the South African economy, global inflation, and high interest rates?

In the short term we expect inflation will move in the right direction as global supply chains normalise and demand subsides on the back of higher rates. While this gives central banks breathing space, we are concerned that corporate profitability will be under pressure.

We are therefore cautious in the short term. In the medium and longer term, though, we are quite excited about the prospect of an extended positive cycle for emerging markets and particularly commodity exporters, who will benefit from the energy transition. Over the past two years we have experienced a positive rerating of smaller and medium-sized companies and a derating of some of the larger companies, which we avoided in the past on valuation purposes. As a result of this our exposure to larger companies, such as Naspers and Richemont, has increased.

Barry Shamley (left) and Peter Vogel, portfolio managers at Investec Wealth and Investment, collect the trophy from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg

Raging Bull Award for the Best South African General Equity Fund for straight performance over three years to December 31, 2022

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PSG DIVERSIFIED INCOME FUND

protect client capital.

To what do you attribute the fund's superior performance over the last few years?

We explicitly focus on always protecting capital, but are willing to be offensive when markets become extremely pessimistic. This is a key behavioural differentiator in the market.

Through our globally integrated investment process the fund has access to nine buy lists of securities across asset classes. This allows us to use a broader range of assets than the typical multi-asset fixed income fund, at various periods in the cycle.

PSG’S Diversified Income Fund is in the multi-asset income Asisa category, one of three income categories (the other two being the interest-bearing variable and interestbearing short-term) that fall within the ambit of this award. According to its fact sheet, the fund delivered an annualised 7.99% a year for investors over the three-year period, considerably more than its benchmark, CPI+1%, which averaged 6.33%.

The fund’s managers, Lyle Sankar, Ané Craig and John Gilchrist, responded to the following questions from Personal Finance:

The fund is essentially an interestbearing income fund, limited to only 10% exposure to equity. What is the significance of this in accomplishing the fund's objectives?

LS, AC & JG:The fund is a core fixed-income portfolio and over time consists of around 90% fixed-income/interest-bearing assets. With a globally integrated investment process, we are able to use the full spectrum of interest-bearing assets, extracting value from money markets and government and corporate bonds, locally and offshore.

In terms of the mandate, the fund can

allocate 10% to equities and a further 25% to listed property. However, in line with the key objective of capital preservation, we limit property, preference shares and equity holdings to less than 10% of the fund in aggregate.

The ability to use more than just local property in addition to traditional fixedincome assets enables us to both mitigate risk and add additional sources of returns to the portfolio in a differentiated way.

What is your strategy regarding your allocation to bonds and cash instruments?

Our philosophy across asset classes is to start with cash as a default position, rather than a strategic asset allocation framework. This is a key strength, as we only allocate out of cash into opportunities that meet our real required returns, buying only when we see sufficient margin of safety against permanent capital losses. This has enabled us to avoid the costly pitfalls of permanent capital loss. For example, we have not had a default (such as a Steinhoff or African Bank) and have typically bought government bonds only when real yields are sufficiently wide to

We have a dynamic asset-allocation process and focus on the best risk-adjusted ideas. Our team-based decision-making framework allows portfolio managers the freedom to express ideas best aligned to the fund’s objectives. In the case of the PSG Diversified Income Fund, the objectives are both generating high levels of income and maintaining a high degree of capital preservation.

Looking forward, how do you see the global (and domestic) inflation/interestrate scenario playing out and how are you positioning the fund accordingly? We believe we have seen a global inflection point with inflation and interest rates moving structurally higher. Thus we anticipate inflation being higher for longer.

We expect supply-side dynamics to provide an underpin for commodity exporters.

Developed market assets that benefited from a low inflation environment are unlikely to perform well in the years ahead, while emerging market commodity exporters are set to continue to outperform.

We believe we are in the early stages of a multi-year opportunity. SA government bonds look extremely attractive against this backdrop, especially with moderating inflation and an interest-rate cycle close to the top.

We continue to manage risk and opportunity in a balanced manner, believing the wider diversification offered by our global buy lists is likely to result in attractive income returns generated in a risk-conscious manner.

Chief investment officer at PSG, John Gilchrist, and portfolio managers Lyle Sankar and Ané Craig, with their Raging Bull trophy.

Photo: Mike Hardenberg

Raging Bull Award for the Best South African Interest-Bearing Fund for straight performance over three years to December 31, 2022.

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Consistency Performances

PSG GLOBAL EQUITY FEEDER FUND

arguably too early. The onset of the pandemic added fuel to the fire, exacerbating interest in tech when more traditional industries had to temporarily cease operating. Entering 2022, we had observed hugely divergent markets for some time, where large parts of the markets were extremely overvalued (mainly the popular mega-caps dominating passive indices), while other parts of the market were hugely out of favour, trading at bear-market valuation levels. We were able to allocate significant capital to companies where these dynamics were obscuring their quality characteristics and which were trading at wide discounts to intrinsic value. These opportunities tended to be in “older economy” areas such as financials, beverages, mining, oil and gas, and shipping.

What counters stood out for you in 2022?

PSG’S Global Equity Feeder Fund is a randdenominated equity feeder fund that invests solely in the PSG Global Equity Sub-Fund, a sub-fund of PSG Global Funds SICAV PLC, denominated in US dollars. Over three years it delivered an annualised 17.75% a year in rands, more than 5% a year above its benchmark, the MSCI World Index. Remarkably, the fund returned 14.82% in 2022, when the index dropped by 12.73%.

Personal Finance put the following questions to fund managers Greg Hopkins, Philipp Wörz and Justin Floor:

Can you outline your investment process, referring to stock selection and regional allocation?

GH, PW & JF: Our process is research driven, long-term, benchmark agnostic and fundamentally bottom-up. We have been investing in global markets since 2008 by consistently applying our 3M (moat, management, margin of safety) investment philosophy. We look to invest in companies where the underlying quality dynamics (moat and management) are significantly undervalued (margin of safety).

Some of the most fruitful investments are made in times of fear and uncertainty. Our approach tends to favour uncrowded areas where prices and expectations are often low. We like to fish in less crowded waters. When investing in more cyclical sectors, we place strong emphasis on an industry’s supply side, and favour investments with highly asymmetric payoff structures: significant upside and little downside.

The fund diversifies across industries, currencies and geographies but has historically favoured regions with Western governance standards.

The year 2022 was one most investors would prefer to forget, yet your fund did remarkably well. How did you navigate the year, especially around the tech crash?

The fund had no exposure to tech shares during the sell-off in 2022, although tech was one of the fund’s largest exposures from 2015 to 2018. The zero-interest rate and low-growth environment in the late 2000s resulted in tech company valuations rising to rather lofty levels and we exited our tech holdings in 2018,

The top contributors were Scorpio Tankers and Euronav (two of the world’s largest tanker shipping companies), diversified miner Glencore, Resona Holdings (a large Japanese bank, mainly focused on the retail market) and The Mosaic Company (one of the world’s largest producers of potash and phosphates used in the production of fertilisers).

How are you positioning the fund going forward, considering ongoing worries about inflation, high interest rates, and a possible recession?

We are finding good opportunities to buy stocks that are cheap, out of favour and that we believe will be the beneficiaries of the probable economic conditions over the next decade.

These include resilient global businesses and producers of scarce energy resources and materials. When we contrast the valuations of our portfolio holdings with market indices, especially in the US, we note that the difference remains extremely wide – we hold stocks that are much cheaper than the widely owned growth stocks (the winners of the past) and those dominating passive investment strategies.

Justin Floor, head of equities at PSG, and chief investment officer Greg Hopkins collect the trophy from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg

Raging Bull Award for the Best (SA-Domiciled) Global Equity General Fund for straight performance over three years to December 31, 2022.

ANCHOR GLOBAL EQUITY FUND

Raging Bull Award for the Best (FSCA-Approved) Offshore

your peers, resulting in your superior performance over three years. How did you navigate 2022?

Candidly, I am disappointed with the fund’s performance in 2022. The fund was fairly defensively positioned throughout the year, which helped, but I didn’t manage our exposure to the energy and materials sectors particularly well. On the one hand, the fund’s risk controls stopped the year being significantly worse, but with modifications, they could’ve made the year much better. I’ve worked on improving our risk management tools and processes, which should hopefully make the fund more robust prospectively.

Were there any high points during the year for you, or stocks that surprised to the upside?

THE ANCHOR Group is a South African asset management company that offers a select range of unit trusts to investors, including an offshore range domiciled in Ireland and denominated in US dollars. Its Ireland-domiciled Global Equity Fund was launched in 2015, and the fund uses the MSCI All Country World Total Return Index as its benchmark.

The fund is aimed at the investor who can withstand the short-term volatility associated with a global equity fund in order to reap superior rewards over the long term.

Despite being down almost 23% (in US dollars) in 2022, it returned an annualised 12.6% over the past three years, keeping it at the top of its peer group (offshore global general equity fund approved to be marketed in South Africa) in rand terms and well above the 4% delivered by its benchmark.

The fund’s top holdings at the end of 2022 were (in alphabetical order): Alimentation Couche-Tard, Autozone, Berkshire Hathaway, Coca-Cola, CVS Health, Exxon Mobil, General Mills Inc, Hershey, Johnson & Johnson, and Pepsi.

Personal Finance put the following questions to portfolio manager Nick Dennis:

Please outline your investment philosophy/strategy regarding the Anchor Global Equity Fund. ND: The fund’s mandate is largely unconstrained across sectors and geographies. That said, ideally I want to invest in “multibaggers”. These are companies (and shares) with the potential to increase by multiples of their current size. These are typically young, innovative, founderrun companies that are solving important problems in enormous markets. Multibaggers can be found in any sector, but over the last decade the most fertile ground has been in the technology space. However, growth shares need the right macro environment to work; when conditions are hostile, we aim to shift exposure to other sectors.

The year 2022 is one many investment managers would prefer to forget. Yet you managed to emerge “less badly” than many of

For the most part, 2022 felt like an endless procession of downside surprises! In an otherwise challenging year, our positions in relatively “boring” companies like AutoZone and Hershey delivered solid performances, while Exxon Mobil was a big winner.

How are you positioning the fund looking forward, considering ongoing worries about inflation, interest-rate hikes and geopolitical risks?

The fund came into 2023 defensively positioned, which was unintentionally in line with the broad consensus. I came to the realisation that the biggest risk was that the fund wasn’t taking enough risk, given the one-sidedness of investor positioning and an improving macro backdrop. With a reasonably strong economy, falling inflation, and an end to rate hikes in sight, there appears to be a window where risk assets can do well. After suffering through a brutal two-year bear market and having fallen as much as 80% from their peaks, numerous growth stocks are showing encouraging signs of life. I’ve increased exposure to the growth space and plan to continue to do so as long as the elements align.

Global Equity Fund for straight performance over three years to December 31, 2022.

Portfolio manager at Anchor Capital, Nick Dennis, collects the trophy from Personal Finance editor Martin Hesse

Photo: Ian Landsberg

Delivering investment excellence

It has been an unprecedented time in the market. Following massive fiscal stimulus in the wake of the Covid-19 pandemic, we have seen a resurgence in inflation. The turbulence induced by rising interest rates even as liquidity is drying up, has caused much unease for investors.

At times like these, it is essential to have an investment manager partner with broad and proven investment capabilities. At PSG, we offer our clients access to a wide range of funds through our in-house investment platforms and through some of South Africa’s leading product providers.

Single manager: Long-term, diversified thinkers

PSG Asset Management manages a suite of single-managed, rand-denominated, local unit trusts while offering access to global markets through foreign currency denominated global funds and their rand-based feeder funds. PSG Asset Management follows a bottom-up, research-driven, globally integrated investment process that seeks the best possible investment opportunities for investors applying their 3M approach.

Their portfolios can, from time to time, look different from those managed by their peers, offering clients valuable diversification benefits. PSG Asset Management’s team-based approach ensures consistent process implementation over time and across funds, evident in industry recognition of funds in several categories over several time horizons. Its long-term track record affirms its proven process and offers investors important diversification and alpha generation benefits.

Multi-manager: Building deeply diversified portfolios

PSG Multi-Management manages the comprehensive suite of local and global multi-managed unit trust solutions for PSG Wealth advised clients (only available via PSG Advisers) and retail investors (accessible via the PSG Wealth platform). They have established an excellent riskadjusted track record across the range of funds. The multi-manager evaluates, selects and then combines various fund managers into a single fund of funds portfolio with the aim of offering clients a diversified solution that is well-positioned to meet their long-term investment objectives. They focus on delivering value to clients by placing return, risk and value for money at the forefront of their selection process while constructing diversified portfolios.

Regardless of the fund selected, we are committed to offering our clients investment excellence. For more information, visit www.psg.co.za

RAGING BULL AWARDS 2022

PSG received multiple awards in various fund categories. In addition, PSG Asset Management received the prestigious South African Manager of the Year Award.

COUNTERPOINT SCI VALUE FUND

Over the past few years, which counters have specifically stood out for you as being undervalued by the markets?

Good quality (that is, not all) small caps in South Africa have been, and continue to be particularly undervalued. I would regard some of the most undervalued assets as shares in the following companies: Astoria, Bell, Fairvest, Lewis, Metrofile, Sabvest and Telkom. These are all either good businesses, or less good businesses with valuable assets. But they are being ignored by the market due to their small size.

How are you positioning the fund going ahead, taking into account ongoing worries about inflation, higher interest rates, and a possible global recession?

CAPE-TOWN -based Counterpoint Asset Management was founded in 2012 and is headed by Paul Stewart. It manages 15 unit trust funds under the Sanlam Collective Investments licence.

The Counterpoint SCI Value Fund, which invests in shares listed on the JSE, outperformed its peers and its benchmark, the FTSE/JSE All Share Total Return Index, over five-years to the end of 2022, delivering an annualised return of 14.18% over five years, according to ProfileData. This was well above the benchmark, which delivered 8%.

Personal Finance asked fund manager Piet Viljoen about how the fund is managed and the reasons behind its outstanding riskadjusted performance.

Can you outline the investment philosophy/strategy of the Value Fund?

The fund employs a strict value philosophy. Our interpretation of value means only buying shares that are trading below their intrinsic value, with a comfortable margin of safety. This strategy often requires

investors to be patient and unmoved by short-term news but has historically delivered exceptional outcomes for those able to stay committed to their investment strategies.

In managing the fund, we employ a sensible risk management process which focuses on assessing business risk, market risk and applying sound diversification principles. The fund invests in listed equities as well as assets with equity-like returns, but they must be listed in South Africa. We believe investors can and should make their own decisions as to what proportion of their assets should be invested in South Africa.

The year 2022 was one most investment managers would prefer to forget. How did you navigate the volatility?

We do not regard volatility as risk. Volatility is an opportunity to either acquire cheap assets when downside volatility provides such an opportunity or sell expensive assets when upside volatility provides an opportunity. So, the fund stuck with its process, and came out the other side in good shape.

The fund buys businesses, not pieces of paper. It is not the fund managers job to worry about such macro variables. It is the job of the management of the companies in which the fund buys shares to worry about how they deal with those variables over time – both positive and negative. In turn, the fund manager’s job is to make sure the fund pays a reasonable price for the cashflows the business will generate over time, considering – among other things – the track record of the management team of the business in dealing with both external factors as well as external.

In taking account of the poor – and deteriorating – infrastructure which our incapable state provides the economy of South Africa, in exchange for an increasing tax burden, we have increased the discount rate and revised downwards expected future cash flows to arrive at the present values of businesses in which we choose to invest. Even accounting for these two (negative) changes leaves a number of undervalued small-cap shares from which the fund has built a diversified portfolio that has more than acceptable future expected rates of return embedded in the current price.

Brian Pyle, chief investment officer and executive director at Counterpoint Asset Management, receives the trophy from Personal Finance editor Martin Hesse

Photo: Ian Landsberg

Raging Bull Award for the Best South African Equity General Fund for risk-adjusted performance over five years to December 31, 2022.

Award-winning Plexus Wealth expands horizons

Growing wealth for clients is reaping fruit for Plexus Wealth and its clients.

As an independent brokerage that star ted out in 1994, Plexus Wealth has grown significantly whilst remaining true to its purpose. It operates countr ywide through of fices situated in the key regions of South Africa – Johannesburg, Durban and Stellenbosch.

More recently, and in spite of two years of lockdown due to Covid-19, the business has also opened its doors in Mauritius and the Netherlands, ser vicing its evergrowing international client base.

“To best ser ve our client profile, we provide a comprehensive solution,” says James Barnett, CEO of the Plexus Wealth group. “We strive to keep on par with client trends, especially as South Africans increasingly consider living, working and growing wealth beyond the countr y's borders. For this reason, it's impor tant to have an international presence. Having global of fices also gives us keener insight to global investment oppor tunities and enables us to assist clients in other ways.”

The business also has a long-standing, highly experienced and qualified team consisting of independent financial advisors, char tered accountants and qualified attorneys.

“Our collective knowledge enables us to holistically consider retirement income, taxation and estate planning in our financial advice. In this way, clients can ef ficiently achieve their financial objectives, albeit in South Africa or internationally,” says Barnett.

To fur ther meet clients' needs, Plexus Wealth of fers its own range of funds.“The Plexus Wealth BCI funds are specifically designed to keep pace with inflation and safeguard the purchasing power of clients' savings over time,” he says. “Our funds have grown a solid track record of achieving their mandated objectives since inception.”

Awards and accolades

“Fur thermore, we are proud that our listed proper ty por tfolio manager, Amanda de Wet, has been recognised by the industr y for her fund management skills.” De Wet was awarded the Citywire best por tfolio manager award for 2022.

In addition, the Plexus Wealth BCI Proper ty Fund managed by De Wet was a runner-up in its categor y in the 2018 Raging Bull awards. In 2023, the Fund was again nominated for a Raging Bull award.

The high-yielding Plexus Wealth BCI Flexible Proper ty Income Fund boasts the accolade of best per forming fund for 2021 (source: the Corion Repor t). Barnett says: “This recognition bears testimony to our investment philosophy and process in line with our fund mandates.”

Fur thermore, and in line with its of fshore expansion, the Plexus Wealth group of fers clients a range of investment ser vices and other products. These include international capital protected products; integrated international banking and investment platforms (UK and Swiss based); share por tfolios; tax and estate planning, including wills, emigration and tax residency advice.

Wealth - independent insight in an uncer tain world.

CEO: Plexus Wealth

Amanda de Wet Plexus Wealth fund manager

“If our clients are able to retire confidently, and leave a financial legacy to loved ones, whether they remain in South Africa or emigrate, then we know we have done our work well.” - James Barnett, CEO: Plexus Wealth

Plexus

Team of diver se exper ts

Other ser vices and produc ts

A well-diversif ied por tfolio should contain investments in a wide variety of asset classes, including proper ty. This strategy suppor ts long-term gains by reducing risk.

The Plexus Wealth BCI Proper ty Fund has delivered outstanding returns in its categor y over 1, 3, 5 and 10 years. In fact, we can say since its inception in 2009.

For a well-rounded por tfolio that matches your unique investment profile, contact a Plexus Wealth advisor today.

T: +27 (0)31 940 0470

E: info@plexuswealth.co.za

www.plexuswealth.co.za

Plexus Wealth BCI Proper t y Fund

Blazing ahead with an impressive track re cord

The Plexus Wealth BCI Proper ty Fund is one of those rare funds that has per formed exceptionally well in its categor y over all time periods for more than a decade.

Launched in 2009, the fund has excelled in a categor y that now contains more than 45 collective investment schemes. It was a runner-up in the 2018 Raging Bull awards and a nominee for the awards in 2023.

“These nominations definitely inspire us to stick to what we believe in,” says fund manager Amanda de Wet.

Investment insight

“Like most investors, we like to be over weight in companies with good quality assets, strong information systems and a great management team. But being cognisant of having to generate a reasonably high-income component of the return, we also include companies with unglamorous assets but high-quality income streams, so long as there is a strong management team in place.”

While the fund is largely benchmark agnostic, De Wet still ensures there is adequate liquidity within the fund.

“Being a smaller fund, we are also able to more easily take advantage of good growth oppor tunities. This includes identifying mispricing and investing in smaller companies that of ten fall outside of the investment mandate of the larger funds.”

Common challenges

She admits the real estate sector has been tough in recent years. It also faces the same challenges nearly all South African businesses face right now, which are predominantly lack-lustre economic growth and power constraints.

“Fundamentally, however, the real estate sector is looking better locally than it has in the last three years,” she says. “Shopping malls are buzzing, rental reversions are decreasing and vacancies are trending downwards.”

In addition, de Wet says REIT balance sheets are improving. “Many of the funds have star ted retaining some of their distributable income to bring down debt levels, or at least stabilise them.

“In the Central and Eastern Europe (CEE) region, REITs rental growth is strong and buf fering potential negative proper ty revaluations that are to be expected in higher interest rate environments. Despite facing the headwinds in the local proper ty sector, REITs of fer an attractive income yield of 8%-12% and remain a good building block in a diversified investment por tfolio.”

Who should consider invest ing in the fund?

Proper ty provides a great diversifier in your current por tfolio. Exposure to another asset class reduces the overall risk in a por tfolio. Proper ty also of fers benefits that stocks and bonds do not provide and enhances income.

The primar y objective of the Plexus Wealth BCI Proper ty Fund is to provide a high income and long term capital appreciation. It is suited to investors with a medium to long-term investment horizon and a moderate-high risk profile. The fund can enable investors to diversify their por tfolio and gain benefits that stocks and bonds do not provide.

Please speak to a Plexus Wealth advisor for independent financial advice to determine which course of action would be appropriate for you.

AMPLIFY SCI WEALTH PROTECTOR FUND

hedging has resulted in significant gains for our clients. The power of compounding off a higher base then becomes a major differentiator when market beta returns and risks subside.

To what do you attribute the fund's success in providing healthy returns at low capital risk over the last five years?

We attribute our success to our obsessive focus on understanding the downside risks and not losing capital. We are happy to take on risk, but only where we feel we are being adequately compensated by the quality of returns.

We rigorously stress-test our portfolios to avoid exposure to unintended risks or shocks. This provides clients with an additional layer of protection in the fast-changing world and volatile financial markets.

AMPLIFY INVESTMENT Partners is a CapeTown-based boutique investment firm headed by Marthinus van der Nest, which outsources the management of its seven unit trust funds and seven retail hedge funds to carefully chosen external fund managers.

The Amplify SCI Wealth Protector Fund is a low-equity multi-asset fund managed by Truffle Asset Management. It is aimed at investors who want an above-inflation return on their investment but need to protect their capital.

At the end of last year, the fund was leading its peers in the low-equity multiasset sub-category over one and five years, boasting an annualised return of 11.11% over five years, over three percentage points above its CPI+3% benchmark of 7.95%. In fact, over five years it had also outperformed all funds in the multi-asset medium-equity subcategory and all but three funds in the crowded multi-asset high-equity subcategory.

Personal Finance put the following questions to Truffle Asset Management:

As a low-equity fund, aimed at risk-averse investors, what is your investment strategy regarding asset allocation and, within the equity

allocation, stock selection?

TAM: The primary focus of the fund as a low-equity fund is to generate the target return of CPI+3% while protecting capital over the short term (no negative returns over a rolling one-year period). To achieve this, we build the portfolio from the bottom-up, where each security must at least meet or exceed the CPI+3% return hurdle on a riskadjusted basis.

We are active and agile through changing market cycles. Our asset allocation strategy means we stay mindful of changing risks and valuation opportunities across asset classes and we actively manage the portfolio at a security level to ensure we consistently deliver to the stated objective.

Over the last decade Truffle has delivered consistent alpha in each asset class. The fund therefore benefits from the best selection of securities across all asset classes in addition to benefiting from each asset class’s risk premium.

A major competitive advantage of our approach is our focus on capital protection. Protecting capital during market drawdowns and dislocations through skilful security selection, portfolio construction and

This focus on the potential downside and understanding the downside risks of owning an asset is valuable in seeking out securities where we believe the returns are skewed to the upside.

How is the changing macroeconomic environment, with higher inflation, higher interest rates and higher stock-market volatility, plus a possible upcoming recession, affecting your management of and outlook for the fund?

Macro-economic forecasting is difficult to get correct with high frequency. While we have a sense of the current macro-economic environment and potential scenarios and outcomes, we try to focus on valuation and what the market is currently pricing into assets. We aim to hold a diversified portfolio of many uncorrelated and attractively valued securities (that is, trading at a discount to their intrinsic value). This tends to be a better predictor of long-term returns, rather than timing the economic cycle.

Iain Power from Truffle, to which the management of the fund is outsourced, and Marthinus van der Nest, head of Amplify, receive the trophy from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg

Raging Bull Award for the Best South African Multi-Asset Equity Fund on a risk-adjusted basis over five years to December 31, 2022.

BATELEUR CAPITAL is a boutique firm based in Cape Town, founded in 2004. It manages three hedge funds and two unit trust funds under the Prescient license. Its Flexible Fund, which is free to invest across asset classes in any proportion (the only restriction being its offshore exposure at 45% maximum), delivered annualised performance of 9.5% over five years at a lower level of risk than its competitors. The return was comfortably above its benchmark of CPI Inflation plus 4% (8.9%).

In his 2022 report-back to investors, fund manager and Bateleur CEO Kevin Williams noted: “The fund eked out a 1.8% gain net of fees for 2022. We consider this a ho-hum performance at best, with several missed opportunities. However, a key positive is the fund did not lose money in a volatile and challenging global investing environment. As comparatives, the JSE All Share Index appreciated 3.6% including dividends reinvested but before fees. A basket of SA bonds gained 4.3%, while cash returned 4.9%. The global picture was gloomier. The S&P 500 and MSCI World Equity Index both declined 18.1% in US dollars. The World Bond Index fell 18.3%, its worst annual performance on record, while the US Treasury Index declined 12.5%.”

At the end of 2022, half the portfolio was in local equities, 25% in foreign equities, about 9% in local bonds and the rest in local and offshore cash. Its top equity holdings were: Bidcorp, British American Tobacco, TotalEnergies, Naspers and Adcock Ingram.

Personal Finance put the following questions to Williams:

What is your investment philosophy/ strategy for the fund regarding asset allocation and stock choice?

KW: The fund is predominantly an equity/ cash fund. Asset allocation is determined by considering both top-down macro factors (such as the direction of interest rates and quantitative easing) and bottom-up factors (such as equity valuations). For example, if

BATELEUR FLEXIBLE PRESCIENT FUND

Raging Bull Award for the Best (FSCA-Approved)

Offshore Global Asset Allocation Fund for risk-adjusted performance to December 31, 2022.

economies are entering a tightening monetary phase and equity valuations are elevated, the fund would generally increase its cash weighting at the expense of equities.

Recently, the fund has also held SA government bonds, as the yield differential between longer-duration bonds and shortterm money market rates was unusually high, providing an attractive entry point.

Stock selection is fundamentally driven through Bateleur’s bottom-up research process.

To what do you attribute the fund’s excellent risk-adjusted performance over the past five years?

By sticking closely to our investment philosophy and not being overly influenced by market noise. We are especially focused at trying to minimise mistakes and avoid permanent capital loss.

Are there any particular investments that have stood out for you?

Within South African equities the fund had sizeable exposure to African Rainbow Minerals (ARI) and RMI Holdings (recently

renamed OUTsurance). We would consider both as differentiated fund holdings. ARI benefitted from record profits from its coal operations, while significant value was unlocked in RMI via the unbundling of Discovery and Momentum Metropolitan.

Within global equities, the fund benefited from meaningful exposure to the oil and gas sector via TotalEnergies. Pharmaceutical giant Merck, which owns the blockbuster cancer drug Keytruda was also a notable contributor.

How are you positioning the fund going forward, taking account of ongoing worries around inflation, rising interest rates and a possible global recession?

Although global equities de-rated over 2022 and now trade in line with long-term averages, we remain concerned about corporate earnings growth – especially in the current high-interest-rate environment. The fund is resultantly conservatively positioned with a high cash weighting and a bias towards quality equities with predictable cash flows.

Warren Riley, analyst and portfolio manager (left), and Amanda van Zyl, head of operations and client liaison at Bateleur Capital, collect their trophy from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg

INVESTEC WORLD AXIS CAUTIOUS FUND

Raging Bull Award for the Best (FSCA-Approved)

cut equity exposure, culminating in the lowest equity weighting (24%) we have run since the inception of the fund in 2012. This was in light of our assessment that the risk-return trade-off for global equities was particularly poor, given heightened geopolitical risk and complicated central bank policy at that point. Subsequent to that tactical downweighting, the MSCI World Index fell over 12% over the following few weeks.

Having entered 2022 with very little developed-market government bond exposure, we increased exposure to fixed income throughout most of 2022 as yields began to normalise.

Since the beginning of December, we have again downweighted our position in risk assets.

How are you positioning the fund going forward, considering worries about a global recession, inflation, and high interest rates?

INVESTEC’S World Axis funds fall under Investec Wealth & Investment International, a company registered in Guernsey. They are denominated in US dollars.

The Cautious Fund is a low-equity multi-asset multi-managed fund aimed at preserving capital and providing income; at the end of 2022, 24% of its portfolio was in equities. Over five years it returned an annualised 1.9% in US dollars.

Investment managers Ryan Friedman and Riaan Wagner answered the following questions from Personal Finance:

Please state the objectives of the fund and describe your investment approach regarding asset class allocation and selection of underlying funds.

RF & RW: The investment objective of the Investec World Axis Cautious Fund is to provide investors with capital growth and income over the long term, while aiming to outperform the fund benchmark (the Morningstar Cautious Allocation Average) over three-year rolling periods. A second objective is to outperform dollar cash over rolling three-year cycles. These objectives are achieved through a long-term investment approach which emphasises selecting

some of the world’s finest active managers; tactical asset allocation based on our in-house view of the macro-economic environment; blending managers appropriately to reduce risk without infringing on performance; and performing stringent due diligence on all managers.

To what do you attribute the fund's superior risk-adjusted performance over the five years to the end of 2022? This was driven by our tactical asset allocation as well as manager selection. The largest positive contributor was being underweight in global fixed income, as the Bloomberg Global Aggregate Index dropped 1.3% per year over the past five years. Our fixed-income managers protected capital exceptionally well, with four of our five managers delivering positive USD returns over the period. Furthermore, our global equity managers managed to outperform the MSCI World Index, led by our value and thematic investment managers.

2022 was a rough year for investors –how did you go about navigating it?

During the first quarter of 2022 we progressively

We continue to believe that the US economy is capable of a soft landing, albeit that growth will slow materially. In the UK and Europe, the slowdown is more a function of food and energy prices spiking while consumer confidence has fallen.

In equity markets it will feel like a recession, even if the economy avoids one, because the parts that are slowing the most are the ones the equity market is most exposed to. In other words, we are likely to have an earnings recession, and the market has not priced this in, in our view.

We are very overweight in fixed income, across both government bonds (developed and emerging markets) and credit. Given our view of markedly slower growth in 2023, together with a sharp fall-off in inflation in the short term, government bond yields have the potential to fall, especially in the US.

In general, with higher yields today across the curve and credit spectrum, we feel that the opportunity cost of being underweight equities and overweight both short- and long-duration fixed income is materially lower than it was 12 months ago – even if our view on equities proves incorrect.

Portfolio manager Riaan Wagner and Ryan Friedman, head of multi-manager investments at Investec Wealth and Investment, collect the trophy from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg

Offshore Global Asset Allocation Fund for risk-adjusted performance to December 31, 2022.

THE IMPACT OF TAX ON RETIREMENT-FUND PENSIONERS

AT PERSONAL FINANCE we have always advocated saving for retirement primarily in a retirement fund. This is because of the substantial tax concessions you receive, which you do not get with discretionary savings.

First and foremost, contributions up to 27.5% of your annual taxable income are fully tax-deductible to a maximum of R350 000 a year, and anything above that can be rolled over to a subsequent tax year or even used to reduce your tax liability on retirement.

Second, there is no tax on the retirement fund investment itself: no tax on interest, no dividends tax and no tax on capital gains (CGT).

You need to buy a pension with twothirds of your savings on retirement, of which the first R550 000 is tax-free. (This was increased from R500 000 for the

2023/24 tax year. The studies below use the old amount.)

Your pension is taxed as income. However, the prevailing view in the retirement industry is that this tax on your pension works out to be relatively low and is a small price to pay for the pre-retirement benefits.

But a financial planner and author on money matters has recently challenged this view, arguing that the tax you pay on your pension has a significant impact on your finances in retirement. It may actually outweigh the pre-retirement concessions, and, in certain circumstances, your outcome may be better if you avoided saving in a retirement fund altogether.

In a recent article, “Reducing tax before and after retirement”, Wynand Gouws, a Certified Financial Planner at Gradidge Mahura Investments, compared various retirement saving scenarios after having

done the necessary calculations for a client.

“The conventional way of only looking at the pre-retirement tax savings is fundamentally flawed, and not enough time is spent on considering the postretirement impact of using retirement funds. Even though a retirement annuity (or contributing to a pension or provident fund) is extremely tax efficient before retirement, they are punitive post retirement, as all the post-retirement income is taxable,” Gouws says.

Gouws’s client was a young doctor of 34. He was earning R1.2 million a year and wanted to save the maximum 27.5% of his income (R330 000) towards his retirement at age 64. Thus he would be saving for 30 years. He had the following investment options: discretionary investments in the form of a unit trust portfolio and a tax-free savings account (TFSA), a retirement fund investment in the form of a retirement

Conventional wisdom, backed by National Treasury policy, would have you believe that saving in a retirement fund is the best route to saving for retirement. But this view downplays the effect of tax on the resulting pensions, which can be “punitive”.

Martin Hesse reports

annuity (RA), or a combination of these. While Gouws provided various investment-combination scenarios, this article singles out the two that best demonstrate the fundamental differences of the contrasting approaches:

Scenario A: the client is fully invested in the discretionary unit trust portfolio plus a TFSA to the maximum allowed.

Scenario B: the client is fully invested in the RA, and invests the tax savings on his deductions in a discretionary portfolio and a TFSA to the maximum allowed.

Gouws’s assumptions, some of which were not detailed in the article, but which he provided to Personal Finance, were:

• Income (and contributions) increase annually by an assumed inflation rate of 6%.

• Taxes are according to the 2022/23 SARS tax tables and are assumed to adjust in line with the inflation rate annually over the planning period.

• Discretionary investments are in a unit trust portfolio, but with R36 000 a year invested in a tax-free-savings account up to the R500 000 lifetime maximum.

• The discretionary portfolio, a worldwide flexible fund, returns 11.41% a year, on average, which represents a real (afterinflation) return of 5.41%. The income after retirement is withdrawn from this portfolio (and the tax-free savings). CGT on these withdrawals has been accounted for, as has interest generated from these investments (which are added to taxable income, less the annual exemption).

• The RA portfolio is a Regulation-28compliant high-equity multi-asset portfolio. Regulation 28 portfolios are limited to 75% exposure to equities and 40% to offshore investments. Because of these limitations, the return is lower than the worldwide flexible portfolio: 10.81% a year, on average, which represents a real return of 4.81%.

Investment taxes do not apply.

• In both scenarios, the client remains in the same portfolio after retirement as before retirement, though in Scenario B it is in a living annuity wrapper. In Scenario A the TFSA and discretionary investment is now used for income.

• In both scenarios, no allowance has been made for a lump-sum withdrawal at retirement. The entire amount is used to provide an income.

• Both scenarios aim to deliver an income of 75% of the pre-retirement income. At retirement the client draws 5% of his savings for an annual income, increasing the rand amount annually by 5%. In Scenario B, the pension income is taxed, subject to secondary and tertiary rebates for pensioners at ages 65 and 75. In Scenario A, the income is drawn from the discretionary investment portfolio. Capital gains tax on withdrawals has

been accounted for, as has tax on interest generated from the portfolio.

• Investments costs have been factored into the analysis, including an effective annual cost of 1.15% pre and post retirement. This takes account of administration fees and potential advice fees (0.5% each, annually).

As can be seen from Table 1, although the accumulated amount at retirement is about 25% higher in Scenario B, the sustainable income is considerably lower owing to the

large difference in post-retirement taxes. In Scenario A the retiree pays about 12% in investment taxes. The Scenario B retiree pays about 29% tax in total, the bulk of which is income tax on the living annuity.

Considering the situation of a lower earner, Personal Finance asked Gouws to do the calculations for someone earning R720 000 a year, also saving 27.5% of his/her income annually.

The results were more equal (see Table 2), but nonetheless gave the Scenario

A investor a slightly higher sustainable income in retirement.

To my mind, the issue boils down to this: how much more do you need to have saved in a retirement fund compared with a discretionary investment to offset the postretirement tax differences? This obviously depends on how long you live, as a longer retirement means you’re paying tax for longer, but let’s retain Gouws’s assumption that you plan to live to age 90. It also depends on your tax bracket in retirement.

HIGH EARNER

A (No RA)

B (RA and reinvest tax savings)

In Gouws’s R60 000-a-month example, where the sustainable incomes differ by only 6% in favour of Scenario A, the savings at 64 (at present-day values) differ by about 19% in favour of Scenario B. So it would not take too much more in Scenario B to close the income gap to zero.

In the R100 000-a-month example, the savings at 64 differ by about 24% in favour of Scenario B, whereas the sustainable income figures differ by about 15% in favour of Scenario A. So here, the difference would need to be considerably greater.

Other studies

I refer now to two studies done on the benefits of using retirement funds to save for retirement. They focus on the differences in pre-retirement savings: one was by Alexander Forbes (now Alexforbes), the other one by Ninety One.

The Alexforbes study, undertaken a few years ago by leading Alexforbes actuary John Anderson and his team, was the subject of an article in this magazine (“Why saving in a retirement fund is hard to beat”, PF 1st quarter 2021.)

It compared saving in a local Regulation-28 compliant retirement fund with saving in discretionary funds under various investment and return scenarios. The assumptions differed from Gouws’s assumptions in that the savings would be for 35 years (not 30 years), and contributions would be 15% of income (not 27.5%). The tax refunds on contributions into a retirement fund would be reinvested.

If the two portfolios delivered the same pre-tax annualised real returns of 5.6%:

• Someone earning R500 000 a year would have accumulated R3 894 510 in a discretionary investment against R7 322 294 in a retirement fund. This is 88% more.

• Someone earning R1 000 000 a year would have accumulated R6 540 833 in a discretionary investment against R14 644 588 in a retirement fund, or 124% more.

Interestingly, the higher earner benefited more from saving in a retirement fund than the lower earner, the opposite of Gouws’s outcome.

Another, very recent, study, published in January this year, by product specialist

Marc Lindley at Ninety One, showed the difference of investing over 15 years in the Ninety One Opportunity Fund between an RA investment and a discretionary investment.

Investor A invests R10 000 a month into an RA, escalating at 5% a year. His tax bracket is 45%, so he receives a tax rebate of R4 500 on his contributions. Thus he is effectively investing only R5 500 a month from post-tax income.

Investor B invests a post-tax amount of R5 500 a month into a discretionary portfolio, also escalating at 5% a year. So the effect on his pocket is the same as Investor A.

After 15 years, Investor A has saved R4.8 million (at an annualised rate of about 8.5%), whereas Investor B has saved just over half of that: R2.5 million at an annualised rate of about 7.7%. The almost one percentage point difference in returns is attributable to investment taxes in the discretionary investment.

So who is right?

Gouws used a very specific example, where the investor invests the maximum 27.5%. He also assumed a slightly higher return on the discretionary investment, whereas the other studies compared investments with similar pre-tax returns.

While the added rebates for pensioners have been factored in, another tax advantage for over-65s is

that they can claim all their medical expenses as opposed to a portion of them, and these tend to rise significantly in later life.

This means that, ultimately, considering all the variables, you need to do the sums yourself with your own financial adviser, to work out the best route for you.

The significance of Gouws’s work is that he shows that post-retirement taxes cannot be swept under the carpet, as those focusing on pre-retirement savings have tended to do.

He writes: “The analysis reinforces the importance of understanding tax preand post-retirement and implementing a retirement strategy that provides diversified income after retirement that specifically optimises for tax. This is even more relevant in a world where increased longevity results in people living into their 90s and 100s.

“We would argue that investors need to implement a diversified post retirement income strategy, this needs to be implemented 20 or 30 years before retirement. Such a strategy needs to consider the other benefits that retirement funds provide, including the fact that retirement funds are not included in your estate and reduce your estate duty; are protected against creditors and there are no executors’ fees on retirement assets.”

MEET SA’S NEWEST FINANCIAL PLANNER OF THE YEAR

At a glittering gala dinner towards the end of last year, the Financial Planning Institute crowned its Planner of the Year for 2022/23, Palesa Dube, a director of advisory firm Wealth Creed in Sandton. Ruan Jooste chatted to her.

PALESA DUBE , a Certified Financial Planner (CFP) from Sandton, attained the highest distinction in her profession when she was crowned the Financial Planning Institute’s (FPI) Financial Planner of the Year for 2022/23. The award, launched in 2000, is the most prestigious accolade in the industry, and at a gala dinner at the FPI’s annual convention in October, the professional body recognised Dube as South Africa’s top candidate. According to the judges’ citation, Dube demonstrated “exceptional service and impeccable ethics in client service, who brought innovation, flawless skill as well as all-round excellence to her profession”.

What makes this particular award special is that Dube was the first woman of colour to achieve this honour.

It was a demanding contest, which included candidates submitting a detailed

financial plan based on a client case study, an ethics and practice standards audit, and a final panel interview testing their grasp of legislation and industry trends.

In her acceptance speech Dube emphasised the importance of financial planning for households, and how financial planners need to be keenly attuned to their clients’ personal values and how these influence their financial and legacy aspirations. “As professionals we need to respond to this need with more than just our technical skills but more with a deep sense of care,” she said.

Dube also saw the competition as an ideal platform to showcase the experience and expertise that exist in her profession, especially of black, female CFP professionals.

“The profession thankfully looks much more diverse now than what it was when

I began my career, but there’s still a long way to go. It was an opportune time to shine a spotlight on the strides we’ve been able to achieve so far. My hope is that my journey and success so far will encourage others to pursue a career in financial planning,” she said.

Dube, who grew up in the townships of Thokoza, Katlehong and then Spruitview Spruitrivier and in the East Rand said that as an FPI ambassador, she will use the platform to motivate change.

The FPI’s strategic objectives for 2023 include driving growth in the number of graduates entering the financial planning profession and pursuing the three planning-related designations the institute offers. The institute is also focused on encouraging experienced members who have left the institute to reinstate their membership, she said.

Palesa Dube, CFP and director of Wealth Creed, in her office in Sandton.

Listen: Ruan Jooste interviews the FPIs Financial Planner of the Year - Palesa Dube

“My efforts therefore will be in support of these objectives through mentoring and other activities so that the next generation see financial planning as a profession of choice. We also need to place emphasis on the challenges that cause more experienced planners to leave the profession, which, among others, is an environment that doesn’t adequately support entrepreneurship in the sector.”

Dube said she believed that there is an important role that independent financial advisory firms can play in the market, but they need to be better supported by the various industry bodies through measures such as development programmes that cater for the progressive life stages of advisory firms. Often the need for growing financial service providers is working capital or funding to assist in scaling the business. The funding models available need to speak to this and be flexible, she said.

“As a profession, I think we need to take pride in the strides we have made in the

industry over the years. When I started my career 18 years ago, the conversation was about moving from a product-led to a client-centric industry with professionals adhering to high ethical standards and using their technical skills to positively impact the lives of the clients we serve.”

Dube feels very strongly about making financial planning more accessible to a broader spectrum of the community. Financial inclusion, consumer protection and financial education are some of the imperatives close to her heart. “This gap can be neatly bridged by incorporating an advice process and will ultimately improve consumer outcomes. I believe our profession is well positioned to support such initiatives in a manner that ensures that all interests are appropriately aligned.”

On the importance of representation in the profession, particularly that of females and people of colour, Dube told Personal Finance that the importance of diversity and inclusion for the sustainability of any

industry is well established. Companies thrive when they embrace different races, cultures and backgrounds, because this better positions them to respond to the needs of their clients. Ethically and morally, it is simply the right thing to do. Finances are a very personal matter, and the inclusion of female professionals in the room can help the financial services industry develop products and solutions that truly speak to the needs of this growing segment in the manner they want to be addressed.

Palesa’s journey

Dube detailed her road to the pinnacle of her career, from obtaining a BCom Investment Management degree in 2003 from the University of Johannesburg, to her post-graduate studies in financial planning, her accreditation as a CFP, and an advanced diploma in trust and estate administration and financial planning services at the University of Free State.

She started her career as an advisory partner at Citadel, moving onto wealth management at Absa Wealth 10 years later. She has been with Wealth Creed for just under five years.

Dube has been married to Thomas since 2005 and has three children: two girls and one boy, who are all still at school. She lives in Sandton and is an avid gardener and cook. But her ultimate passion is the human voice, she said, being a choir member right through her school and varsity years. She still sings in the church choir.

“If you want to spoil me,” she said, "take me to a concert.” She recently attended a concert by her favourite artist, Thandiswa Mazwai, the lead vocalist and songwriter of Bongo Maffin, and absolutely loved the experience. “The voice is my favourite music instrument. I enjoy a wide range of music and appreciate artists from Andrea Bocelli to Gregory Porter, which I am so sad to have missed recently.”

Dube also mentioned her love for the outdoors, and she takes frequent hikes in nature with her family. Her adventurous spirit will, no doubt, bring her many more rewards and accolades in both her professional and personal life in the years to come.

Palesa Dube receives the Financial Planner of the Year Award from Lelané Bezuidenhout, chief executive of the Financial Planning Institute, at its annual convention in October last year. On the right is outgoing Planner of the Year, Ryan McCaughey.

TOP CITIZENSHIP-BY-INVESTMENT OPTIONS FOR SOUTH AFRICANS

When it comes to getting a second passport or residency through investment, there are over 100 countries to choose from. Sarah Young unpacks the top programmes available to South Africans and highlights five important considerations.

When considering investing offshore with a view to obtaining citizenship of a foreign country, there are five important factors you need to take into account:

1. Relocation or Plan B? The first decision you need to make is whether you want to uproot your family and leave South Africa or whether you simply want a “Plan B” in a worst-case scenario. Some programmes are effectively "immigrant visas" and therefore there is an expectation that you will relocate to the jurisdiction and make it your permanent home once you have been granted residency, but many are not.

2. Family benefits. The next factor to consider is the size of your family and who you’d like to benefit from the programme.

Most, if not all, countries allow the applicant to include their spouse and children, but some allow you to include your extended family too.

3. Minimum investment amount. The most common question we get asked is: “How much does citizenshipby-investment cost?”. The price can vary substantially depending on the programme and jurisdiction you choose and whether you’re after a second citizenship or simply a second residency.

4. Time you’ll have to spend in the country. Different programmes have different minimum stay requirements. Some require a minimum of 183 days a year, some a nominal number of days, while with others you never have to set foot in the country if you don’t want

to. Your appetite for travel (and the associated expenses) are important to consider before you commit to a particular programme.

5. Your timeline. Finally, your choice of programme will depend on how soon you want your second citizenship or residency to be granted. Some programmes take only a few months, while others require years of forward planning. The further in advance you start the process, the more flexibility you might have on this point. Below are the top citizenship-byinvestment programmes for South Africans.

GRENADA

Grenada’s citizenship-by-investment programme is our first choice for South

Africans seeking global mobility and the security of a second passport, without the complexities of moving abroad.

The Spice Isle is a Caribbean dream, with picturesque waterfronts and tropical beaches. However, its stunning natural beauty isn’t the reason it’s on our short list.

The main appeal of Granada’s programme is that there is no requirement to travel to the island before, during or after the citizenship process is complete – there's no minimum stay requirement. With a Grenadian passport, you can travel visa-free to over 140 countries (compared with South Africa’s 105), including the Schengen area, the UK, Hong Kong, Singapore, China and Russia. In addition, Grenada has an E-2 Treaty with the US, which means Grenadian citizens who are prepared to invest in and operate a business in the US can secure the right to live and work in the US.

Grenada citizenship-by-investment

quick facts

• Do you need to relocate? No.

• Family that may be included: Spouse, children, financially dependent adult children up to the age of 29, financially dependent parents and grandparents, and single siblings with no children.

• Timeline: Six to eight months (including the time to secure documents)

• Minimum investment amount: $150 000 National Transformation Fund government donation or US$220 000 real estate investment plus $50 000 government contribution.

• Minimum stay requirements: None

IRELAND

Ireland offers one of the world’s most powerful passports and it’s also currently the only passport that allows settlement in both the EU and UK. With an Irish passport, you can travel visa-free to 190 countries.

This, combined with Ireland’s thriving economy, safe environment and top educational opportunities, makes the Irish Immigrant Investor Programme our favourite for families looking to move abroad through investment.

Ireland is still a great option if you don’t wish to relocate: you only need to spend

one day a year in the country to maintain permanent residency indefinitely. However, if you choose to relocate, you can claim Irish citizenship and that powerful passport after five years of reckonable residency.

Irish Immigrant Investor Programme quick facts

• Do you need to relocate? It is not required to maintain Stamp 4 permanent residency. Yes, if you wish to apply for citizenship.

• Family that may be included: Spouse, children, unmarried financially dependent adult children up to the age of 24 who are enrolled in full-time education.

• Timeline: Six to nine months for residency, five to six years for citizenship.

• Minimum investment amount: €500 000 endowment, or €1 million enterprise investment, or €1 million investment fund, or €2 million real estate investment trust.

• Minimum stay requirements: One day per year to maintain residency. For citizenship, at least half of the minimum five-year period must be spent living in Ireland and the 12 months prior to a citizenship application must be spent in Ireland.

MALTA

Malta’s historic architecture and iconic gilded domes serve as one of Hollywood’s favourite backdrops for ancient and fantastical productions.

Malta’s Permanent Residence Programme (MPRP) is one of the most successful residency-by-investment programmes, as it’s more affordable than many other European residency programmes and offers visa-free travel throughout the Schengen area.

MPRP quick facts

• Do you need to relocate? No.

• Family that may be included: Spouse, children, unmarried financially dependent adult children under the age of 29, and financially dependent parents and grandparents above 55 years of age.

• Timeline: Two months.

• Minimum investment amount: Only €100,000 plus a real estate purchase or

Is Portugal’s Golden Visa programme ending?

Portugal’s popular Golden Visa investment programme looks set to be curtailed after successfully running for over 15 years. On 16 February 2023, the Portuguese Prime Minister, António Costa, held a press conference where he presented the general terms of a housing reform proposal. The address included proposed changes to both immigration law and the popular Golden Visa scheme. The primary agenda of the council sitting was housing issues in Portugal and, in particular, the affordability and availability of rental properties.

This is a preliminary proposal. The next step will be a public consultation process with all relevant stakeholders being asked for feedback. This will happen in March 2023, after which a final proposal will be drafted and presented to Parliament. Any further amendments will be considered before it returns to Parliament for general approval. If approved, it will be sent to the President for ratification or reconsideration.

There will be a great deal of media hype around this matter. Sable International, alongside its partners in Portugal, will be active in the public hearings over the next period.

For those who are already invested in the programme, it is important to understand that no changes have yet been legislated or approved.

The bigger underlying question, which will have to be debated, is whether the Portuguese parliament can change the terms of the Golden Visa for those already invested in the programme.

- Andrew Rissik, Group International Director at Sable International

five-year property lease. However, the main applicant is required to possess capital/assets of not less than €500 000 of which €150 000 must be in financial assets.

• Minimum stay requirements: None

Sarah Young is the Investment Migration Manager at Sable International.

Pensions for Palookas

Author: Brett Ladoucé

Publisher: Reach publishers

Retail price: R300 (Takealot), US$19.99 (Amazon) or email pensionsforpalookas@gmail.com

There have been some good books published in the last few years on the subject of retirement: saving for retirement in your working years and then living off your savings once you’ve stopped working. The comprehensive Ultimate Guide to Retirement in South Africa, by Bruce Cameron and Wouter Fourie, springs to mind.

But this book is more focused: it looks at retirement funds in particular and answers important questions that anyone saving in a retirement fund should know, such as “What happens to my retirement savings on divorce?” and “How does tax affect my retirement savings?” And because such a large proportion of working South Africans belong to a retirement fund, including those just out of school, its reach is broader and as such it fills an important gap.

Retirement funds, which comprise pension, provident, preservation and retirement annuity funds,

have specific legal characteristics, as set out in the Pension Funds Act and related legislation. They enjoy far greater protection under the law than other types of investments, plus they offer members unique benefits, such as the tax deductibility of contributions.

Brett Ladoucé is an Advocate of the High Court and one of the country’s leading pension lawyers. He has more than 20 years’ experience in the financial services industry as a legal advisor, product manager, senior development manager, compliance officer and managing director of a financial services firm.

In a series of chapters tackling common questions on retirement funds, Ladoucé uses language that is accessible to the everyday reader, explaining legal concepts and terms where necessary and providing tables and graphs to substantiate his answers. The delightful illustrations are by Ladoucé’s teenage son Micah. - Martin Hesse

The Inclusive Economy

– Criteria, Principles and Ubuntu

Author: Dr Arno J van Niekerk

Publisher: UJ Press

Retail price: R550 (print), R325 (digital)

Economists the world over recognise that capitalism in its current form is in crisis. It’s an echo of a crisis it faced a century ago, which resulted in the rise of its antithesis, communism. In the intervening years, communism proved disastrous, while capitalism was buffeted left and right, at times adopting socialist elements, at other times harking back to a pure free-market economy.

In my view the Scandinavian countries have reached a balance between capitalism’s emphasis on the individual and socialism’s emphasis on the community. But the rest of the world remains adrift and divided and, sadly, is becoming more and more polarised between the haves and the have nots.

While Africa might be considered by many to be the

last place they would look for a solution, Dr van Niekerk, an economist and lecturer at the University of the Free State, believes the African concept of ubuntu holds the secret to restoring economic balance and enabling progress that benefits all. Ubuntu’s emphasis on our humanity and connectedness can be harnessed to reposition economies in the aftermath of the Covid-19 pandemic to become more inclusive and more sustainable.

The Inclusive Economy sets out his thesis in detail. Idealistic it may be, but then so were the movements to end slavery and to end apartheid. As Nelson Mandela said, “It always seems impossible until it’s done.” -

Martin Hesse

COLLECTIVE INVESTMENT SCHEME PERFORMANCE TO 31 DECEMBER 2022

ABOUT THE LISTINGS

• Results are based on the performance of a lump-sum investment over three months, a year, three years and five years.

• Returns for the three- and five-year periods are annualised (that is, the Percentage represents the average performance per year).

• Initial investment costs have not been taken into account. However, many providers have ceased charging upfront fees.

• Annual investment fees have been taken into account: the stated returns are net of these fees.

• Dividends have been reinvested on the ex-dividend date (the day after they are declared) at the price at which the units are sold to you.

• Indices supplied as benchmarks take into account reinvested dividends and interest.

REGULATION 28 FUNDS

The asterisk (*) before a fund’s name indicates that the fund complies with the requirements of regulation 28 of the pension funds act. Funds suitable for retirement savings must comply with regulation 28, which lays down guidelines for investments in different categories of assets. The act restricts exposure to equities to a maximum of 75% of the fund and exposure to property to 25%.

HOW FUNDS ARE CLASSIFIED

The Association for Savings & Investment South Africa classification system categorises funds according to their investment universe: where they invest, what they invest in and their main investment focus.

1. The first tier of the classification system categorises funds as south african, global, worldwide or regional.

• South african funds must invest at least 60% of their assets in the south african investment market at all times.

• Global funds must invest a minimum of 80% of their assets outside sa.

• Worldwide funds do not have any restrictions on where they may invest.

• Regional funds must invest at least 80% of their assets in a specific geographical region, such as asia or africa, excluding south africa, or a country such As the united states.

2. The second tier categorises funds according to the asset class in which they predominantly invest. At this level, funds are categorised as equity funds, interest-bearing funds, real estate funds or multi-asset funds.

• Equity funds must invest at least 80% of the net asset value of a fund in equities.

• Interest-bearing funds invest in bonds, fixed interest and money-market instruments.

• Real estate funds must invest at least 80% of their assets in shares in the Real estate sector of the JSE or a similar sector of an international stock exchange.

• Multi-asset funds allocate assets among shares, bonds, property and cash. Some funds have a fixed allocation to the different asset classes whereas others will change the mix of asset classes in line with how the different classes are expected to perform.

3. The third tier of the classification system categorises funds according to their main Investment focus. For example, they could have a broad mandate, as with a general fund, or have a specific focus, such as on industrial shares.

LETTERS IN BRACKETS

The letters in brackets after the fund names indicate the fee class. Before June 1998, fund fees were regulated with a maximum annual management fee of 1% a year plus vat. Funds launched before this date have an R behind the fund name. Funds and fund classes launched after June 1998 can charge any fees. Typically, fees range from 0.25% To 2%, excluding vat. Funds with unregulated fees can be A, B, C or D-class funds.

Typically, A-class funds are offered to retail investors, while cheaper B-class funds Are for institutional investors who invest in bulk.

MONEY MARKET YIELDS

C or D-class funds charge a single fee covering the management fee, the broker fee and the administration (or platform) fee.

PLEXCROWN RATINGS

The last column in the table shows the PlexCrown rating of a fund if it qualifies for a rating. The PlexCrown fund rating system encompasses different quantitative measures used in calculating investment performance, making it easy for investors to evaluate funds on the basis of their long-term risk-adjusted returns.

The ratings are unbiased and objective. The measures include those for total risk (sharpe ratio), downside risk (sortino ratio and omega risk/reward measure); and manager’s skill (Jensen’s Alpha and Treynor).

Index-tracker funds, exchange-traded funds and money market funds are excluded.

The PlexCrown rating system is a measure of consistency, because ratings are done over three and five years and are time-weighted, with the emphasis on the longer measurement period. To qualify for a rating, a fund must have an official track record of at least five years.

Each qualifying fund is awarded between one and five PlexCrown, with three PlexCrown representing the average performance in the fund’s peer category.

Note that the PlexCrown ratings are based on historical data and are no indication of future performance.

Performance figures supplied by ProfileData

Telephone: 011 728 5510

Email: unittrust@profile.co.za

Website: www.fundsdata.co.za

Disclaimer: Although all reasonable efforts have been made to publish the correct data, neither ProfileData nor Personal Finance can guarantee the accuracy of the information on the unit trust fund performance pages.

GLOBAL INTEREST-BEARING

TAXES AND DEDUCTIONS FOR THE 2022/23 TAX YEAR

INCOME TAX RATES FOR INDIVIDUALS AND SPECIAL TRUSTS*

for the benefit of disabled people and testamentary trusts established for the benefit of minor children. All other trusts pay income tax at a flat rate of 45%.

DEDUCTIONS FOR RETIREMENT FUND CONTRIBUTIONS

Amounts contributed to pension, provident and retirement annuity (RA) funds are deductible by fund members. Amounts contributed by employers and taxed as fringe benefits are treated as contributions by the individual employee. The deduction is limited to 27.5% of the greater of remuneration for PAYE purposes or taxable income (both excluding retirement fund lump sums and severance benefits). The deduction is further limited to the lower of R350 000 or 27.5% of taxable income before the inclusion of a taxable capital gain. Any contributions that exceed the limits are carried forward to the next tax year and deemed to be contributed in that year. The amounts carried forward are reduced by contributions set off when determining taxable retirement fund lump sums or RAs.

DEDUCTIONS FOR MEDICAL AND DISABILITY EXPENSES

All taxpayers: If you contribute to a medical scheme, you are entitled to a tax rebate (referred to as a medical scheme contributions tax credit) of up to R347 each for the individual who paid the contributions and the first dependant on the medical scheme and up to R234 a month for each additional dependant.

Additional tax credit for taxpayers under 65 years: You are entitled to a tax credit of 25% of an amount equal to your qualifying medical expenses plus an amount by which your medical scheme contributions exceed four times the medical scheme contribution tax credit for the tax year, limited to the amount that exceeds 7.5% of taxable income (excluding severance or retirement fund lump sums).

Additional tax credit for taxpayers with a disability and/or with a disabled family member or taxpayers over 65 years: You are entitled to a tax credit of 33.3% of your qualifying medical expenses plus 33.3% of the amount by which your medical scheme contributions exceed three times the medical scheme contribution tax credit for the tax year.

TAX ON LOCAL AND FOREIGN DIVIDENDS

Dividends received by individuals from South African companies are generally exempt from income tax, but dividends tax at a rate of 20% is withheld by the entities paying the dividends to individuals. Dividends received by resident individuals from real estate investment trusts (Reits) are subject to income tax. Non-residents in receipt of those dividends are subject only to dividends tax. Most foreign dividends received by individuals from foreign companies (a shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 20%.

CALCULATE REAL AFTER-TAX RETURNS ON INTEREST-BEARING INVESTMENTS

CPI INFLATION RATE: 6.9% IN JANUARY 2023

The real rate of return on money you invest is affected not only by inflation, but also by the rate at which you are taxed. The lower the inflation rate, the better your real rate of interest is likely to be. To calculate your real return, first work out what your after-tax return will be and then subtract the inflation rate. The table provides the marginal tax brackets and the interest rates at which you will start to receive a real (after-tax) rate of return on your money if it is taxed at that rate. The calculations ignore the fact that in the 2020/21 tax year, the first R23 800 (R34 500 if you are over 65 years of age) you earn in interest is tax-free. Any interest you receive above the exempt amount is taxed at your marginal tax rate.

PROVISIONAL TAX

A provisional taxpayer is any person who earns income by way of remuneration from an unregistered employer income that is not remuneration or an allowance or an advance payable by his or her employer. You are exempt from the payment of provisional tax if you do not carry on any business and your taxable income:

• Will not exceed the tax threshold for the tax year; or

• From interest, dividends, foreign dividends and the rental of fixed property and remuneration from an unregistered employer will be R30 000 or less for the tax year.

Deceased estates are not provisional taxpayers.

CAPITAL GAINS TAX

INCLUSION RATES

• Individuals special trusts and individual policyholder funds: 40% • Other taxpayers: 80%

MAXIMUM EFFECTIVE RATES

• Individuals and special trusts: 18%

• Other trusts: 36% • Companies: 22.4%

SOME OF THE EXCLUSIONS

• R2 million gain/loss on disposal of primary residence

• Annual exclusion of R40 000 to individuals and special trusts

• R300 000 in the year of death (instead of the annual exclusion)

• Retirement benefits

• Most personal use assets

• Payments in respect of original long-term insurance policies

• R1.8 million for individuals (at least 55 years of age) when a small business with a market value that does not exceed R10 million is disposed of.

ESTATE DUTY

Rate: 20% on the first R30m; 25% on estates above R30m. Amounts in an estate up to R3.5m are not taxed. For the second-dying spouse, amounts up to R7m less the exemption used by the first-dying spouse are not taxed.

TAX-FREE SAVINGS ACCOUNTS

No income tax on interest, dividends withholding tax or capital gains tax. Contributions are limited to R36 000 a year, up to R500 000 over your lifetime. Contributions that exceed the limits will be taxed at 40%.

DONATIONS TAX

• Donations tax payable by the donor is levied at a rate of 20% on property donated with a value up to R30 million. The rate on property with a value of more than R30 million is 25%.

• The first R100 000 of property donated in each year to a natural person is exempt from donations tax.

• Donations between spouses are exempt from donations tax.

• Tax deductions on donations to approved public benefit organisations are limited to 10% of taxable income before deducting medical expenses (excluding retirement fund lump sums and severance benefits).

RETIREMENT FUND LUMP-SUM WITHDRAWAL BENEFITS

LUMP SUM RATE OF TAX

R0 to R25 000 0% of taxable income

R25 001 to R660 000 18% of taxable income above R25 000 R660 001 to R990 000 R114 300 plus 27% of taxable income above R660 000 R990 001 and above R203 400 plus 36% of taxable income above R990 000

Retirement fund lump-sum withdrawal benefits consist of lump sums from a pension, pension preservation provident, provident preservation or retirement annuity fund on withdrawal (including assignment in terms of a divorce order).

The tax on a retirement fund lump-sum withdrawal benefit (X) is equal to:

• The tax determined by applying the tax table to the aggregate of lump sum X plus all other retirement fund lump-sum withdrawal benefits accruing from March 2009, all retirement fund lump-sum benefits accruing from October 2007 and all severance benefits accruing from March 2011; less

• The tax determined by applying the tax table to the aggregate of all retirement fund lump-sum withdrawal benefits accruing before lump-sum X from March 2009, all retirement fund lump-sum benefits accruing from October 2007 and all severance benefits accruing from March 2011.

RETIREMENT FUND LUMP-SUM BENEFITS OR SEVERANCE BENEFITS

LUMP

R0

R500 001 to R700 000 18% of taxable income above R500 000 R700 001 to R1 050 000 R36 000 plus 27% of taxable income above R700 000 R1 050 001 plus R130 500 plus 36% of taxable income above R1 050 000

Retirement fund lump-sum benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on death retirement or termination of employment due to attaining the age of 55 sickness accident injury incapacity redundancy or termination of the employer’s trade.

Severance benefits consist of lump sums from or by arrangement with an employer due to relinquishment, termination, loss, repudiation, cancellation or variation of a person’s office or employment.

Tax on a retirement fund lump-sum benefit or a severance benefit (Y) is equal to:

• The tax determined by applying the tax table to the aggregate of lump-sum or severance benefit Y plus all other retirement fund lump-sum benefits accruing from October 2007 and all retirement fund lump-sum withdrawal benefits accruing from March 2009 and all other severance benefits accruing from March 2011; less

• The tax determined by applying the tax table to the aggregate of all retirement fund lumpsum benefits accruing before lump-sum Y from October 2007 and all retirement fund lump-sum withdrawal benefits accruing from March 2009 and all severance benefits accruing before severance benefit Y from March 2011.

TRANSFER DUTY RATES

SARS INTEREST RATES

RATES OF INTEREST FROM 1 FEBRUARY 2022:

Fringe benefits - interest-free or low-interest loan (official rate): 5% a year

RATES OF INTEREST FROM 1 MARCH 2022:

Late or underpayment of tax: 7.25% a year

Refund of overpayment of provisional tax: 3.25% a year

Refund of tax on successful appeal or where the appeal was conceded by SARS: 7.25% a year.

Refund of VAT or late payment of VAT: 7.25%

WHO DOES NOT HAVE TO SUBMIT A TAX RETURN?

You do not have to submit a return if: your total pre-tax earnings from one employer were less than R500 000 for the tax year, you have no other sources of income (for example rental or interest) and there are no deductions that you want to claim.

TRAVELLING ALLOWANCES

Rates per kilometre, which may be used in determining the allowable deduction for business travel against an allowance or advance where actual costs are not claimed, are determined by using the following table:

Note:

• 80% of the travelling allowance must be included in the employee’s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes.

• No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (for example the vehicle is covered by a maintenance plan).

• The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year.

• The actual distance travelled during a tax year and the distance travelled for business purposes substantiated by a logbook are used to determine the costs that may be claimed against a travelling allowance.

Alternative simplified method:

Where an allowance or advance is based on the actual distance travelled by the employee for business purposes no tax is payable on an allowance by an employer to an employee up to the rate of 418 cents per kilometre regardless of the value of the vehicle. However, this alternative is not available if other compensation in the form of an allowance or reimbursement (other than for parking or toll fees) is received from the employer in respect of the vehicle.

FRINGE BENEFITS: EMPLOYER-OWNED VEHICLES

• The taxable value is 3.5% of the determined value (the cash value including VAT) a month of each vehicle. Where the vehicle is:

– The subject of a maintenance plan when the employer acquired the vehicle, the taxable value is 3.25% of the determined value; or

– Acquired by the employer under an operating lease, the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel.

• 80% of the fringe benefit must be included in the employee’s remuneration for the purpose of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the vehicle for the tax year is for business purposes.

• On assessment the fringe benefit for the tax year is reduced by the ratio of the distance travelled for business purposes (substantiated by a logbook) divided by the actual distance travelled during the tax year.

• On assessment further relief is available for the cost of the licence, insurance, maintenance and fuel for private travel if the employee has borne the full cost thereof and if the distance travelled for private purposes is substantiated by a logbook.

SUBSISTENCE ALLOWANCES AND ADVANCES

If you are obliged to spend at least one night away from your usual place of residence on business and you receive an allowance or advance for accommodation in South Africa, which is to pay for:

• Meals and incidental costs: R493 a day is deemed to have been spent; or

• Incidental costs only: R152 for each day is deemed to have been spent.

Where the allowance or advance is for accommodation outside South Africa, a specific amount per country is deemed to have been spent. Refer to www.sars.gov.za > Legal counsel > Secondary legislation > Income tax notices > 2022.

TURNOVER TAX FOR MICRO BUSINESSES

IMPORTANT CONTACTS AND LINKS

Here is a list of sources that can help you with information on financial matters and afford recourse if you have a complaint against a financial services provider.

BANKING

• Ombudsman for Banking Services

ShareCall: 0860 800 900 or phone: 011 712 1800

Email: info@obssa.co.za

Website: www.obssa.co.za

CONSUMER ISSUES

• National Consumer Commission

Toll-free: 0860 003 600 or phone: 012 428 7000

Email: complaints@thencc.org.za

Website: www.thencc.gov.za

• Consumer Goods and Services Ombud

ShareCall: 0860 000 272

Email: info@cgso.org.za

Website: www.cgso.org.za

CREDIT AND DEBT

• Credit Ombud

MaxiCall: 0861 662 837 or phone: 011 781 6431

Email: ombud@creditombud.org.za

Website: www.creditombud.org.za

• National Credit Regulator

ShareCall: 0860 627 627 or phone: 011 554 2600

Email: complaints@ncr.org.za or (debt counselling complaints) dccomplaints@ncr.org.za

Website: www.ncr.org.za

FINANCIAL ADVICE

• Ombud for Financial Services Providers

Phone: 012 470 9080 or 012 762 5000

Email: info@faisombud.co.za

Website: www.faisombud.co.za

INVESTMENTS

• Financial Sector Conduct Authority

ShareCall: 0800 110 443 or 0800 202 087

Email: info@fsca.co.za

Website: www.fsca.co.za

LIFE INSURANCE

• Ombudsman for Long-term Insurance

ShareCall: 0860 103 236 or phone: 021 657 5000

Email: info@ombud.co.za

Website: www.ombud.co.za

MEDICAL SCHEMES

• Council for Medical Schemes

MaxiCall: 0861 123 267

Email: complaints@medicalschemes.com

or information@medicalschemes.com

Website: www.medicalschemes.com

RETIREMENT FUNDS

• Pension Funds Adjudicator

ShareCall: 0860 662 837 or phone: 012 346 1738

Email: enquiries@pfa.org.za

Website: www.pfa.org.za

SHORT-TERM INSURANCE

• Ombudsman for Short-term Insurance

ShareCall: 0860 726 890 or phone: 011 726 8900

Email: info@osti.co.za

Website: www.osti.co.za

TAX

• Tax Ombud

ShareCall: 0800 662 837 or phone: 012 431 9105

Email: complaints@taxombud.gov.za

Website: www.taxombud.gov.za

PROFESSIONAL ORGANISATIONS

• Association for Saving and Investment SA (ASISA)

Phone: 021 673 1620

Email: info@asisa.org.za

Website: www.asisa.org.za

• Fiduciary Institute of Southern Africa (FISA)

Phone: 082 449 2569

Email: secretariat@fisa.net.za

Website: www.fisa.net.za

• Financial Planning Institute of South Africa (FPI)

Phone: 011 470 6000

Email: info@fpi.co.za;

Website: www.fpi.co.za

• South African Institute of Tax Professionals (SAIT)

Phone: 012 941 0400

Email: info@thesait.org.za

Website: www.thesait.org.za

NOT SURE WHERE TO TAKE YOUR COMPLAINT? Call 0860 OMBUDS (662837) and you will be directed to the correct ombud or adjudicator.