30 April 2021
INVESTING
How do you use tax-free products in your client’s investment portfolio? can offer almost 10% higher accumulated value if compared to a taxed investment vehicle, assuming a marginal tax rate of 30%. And this can increase to almost 50% higher accumulated value over a 30-year period. MARTIN RIEKERT Head: Retail Investments, Momentum Investments
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he 1st of March announces the beginning of a new tax year, and our yearly contribution limit to tax-free savings solutions starts afresh. This typically follows a busy February where advisers and clients rush to make a final contribution before the end of the tax year. For us it was no different this year, and in February we observed a total contribution to tax-free products almost three times the average of the previous 11 months. But how do you utilise this tax-efficient investment vehicle as part of your client’s personal financial plan? As a savings vehicle for a short- to medium-term goal or to accumulate monies for a rainy day? The effect of tax-free growth, coupled with the wonder of compounding, can be quite material over the longer term. As an example, over 10 years a tax-free product
“Tax-free savings products also offer additional flexibility – most notably on asset allocation requirements”
*Source: Momentum Investments
This begs the question: What is the most optimal use of your client’s tax-free contribution limits? Although the effect on short- to medium-term investment goals are by no means something to ignore, the benefit is progressively more if a client remains invested for a longer investment horizon. Tax-free savings products can be used as part of clients’ retirement planning. This is especially relevant for clients who have already contributed the maximum of R350 000 per year to their retirement fund savings, by supplementing their retirement savings with a tax-free product. Tax-free savings products also offer additional flexibility – most notably on asset allocation requirements. Unlike retirement fund solutions, a tax-free savings solution is not
restricted to Regulation 28 requirements. This solution can therefore be used to tweak the overall asset allocation of a client’s investment portfolio, especially if there is a need for higher allocation to appropriate growth assets. It is important to note that the effect on your clients will, as always, depend on their unique financial situation. We believe that financial advice plays a critical role in understanding these circumstances, and in developing an investment strategy that addresses your clients’ personal investment goals. And by partnering with a credible investment platform – like Momentum Wealth – you can get access to a personalised investment strategy. Momentum Wealth offers a wide range of underlying investment solutions – one of the widest ranges in the industry – that you can use to construct an investment portfolio that balances your client’s risk tolerance and risk appetite. Advisers will play an increasingly important role as ‘financial coach’ to their clients. This partnership will assist clients not only to start their investment journey to success, but also to stay the course when markets become volatile. By staying invested, a client can accumulate significant benefits in their tax-free savings solutions that will help them to achieve their personal investment goals – something we know is important to you, and is equally important to us. The information in this editorial is for general information purposes and not intended to be an invitation to invest, professional advice or financial services under the Financial Advisory and Intermediary Services Act, 2002. Neither Momentum Wealth (Pty) Ltd nor any of its subsidiaries or affiliates make any express or implied warranty about the accuracy of the information herein. Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services provider and part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406).
Strong interest in offshore equity funds BY DAVE CHRISTIE Offshore Product Specialist, Ashburton Investments
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he Johannesburg Stock Exchange (JSE) All Share and Top40 indices have made a series of record highs in the recent months. This has not deterred South African investors from continuing to invest apace in hard currency global equity funds such as the JSE-listed Ashburton Global 1200 Equity Fund of Funds ETF and the Global Leaders Equity Fund. We have seen record flows into these funds. While many South African listed shares, and particularly the so called ‘SA Inc’ shares – like banks, retailers and local Real Estate Investment Trusts (REITs) – have rallied from very oversold levels, this, however, does not guarantee future returns. Weak local economic fundamentals are a major contributing factor for investors’ preference for offshore markets. South Africa faces economic and industrial policy uncertainty of land expropriation, inflexible labour laws, among other populist pressures. Add to that the current strength of the rand, which has helped drive up local shares and create a greater sense of confidence. A strong rand has provided South African investors with a window of opportunity to convert rand to hard currency and invest offshore, thereby globally diversifying their portfolios.
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Many South African investors continue to take advantage of the weaker dollar, taking a long-term view on the rand. As a locally listed, passive option, the low-cost JSE-listed Ashburton Global 1200 Equity Fund of Funds ETF (ASHEQF) has continued to grow in popularity, having recently reached R1bn worth of assets under management in just over three years since its launch. It provides cost-effective, geographic and hard currency diversification in one simple JSE-listed investment that does not require the use of offshore allowances. It captures 70% of the world’s market capitalisation through investing in seven regional ETFs as a way to keep costs low while ensuring tracking efficiency. These are the S&P500 (US), MSCI Europe, S&P TOPIX 150 (Japan), S&P/ TSX 60 (Canada), S&P/ASX All Australian 50, S&P Asia 50 and S&P Latin America 40. Another appealing offshore investment is the actively managed Global Leaders Equity Fund. This fund is designed for people wanting to invest long term in a
concentrated portfolio of the world’s most prominent companies, household names and industry leaders, such as Microsoft, Visa and Alphabet.
“Weak local economic fundamentals are a major contributing factor for investors’ preference for offshore markets” The Global Leaders Equity Fund gives investors access to mega-cap businesses, each with a market cap in excess of $20bn, with global presence and constituents of the major indices such as the FTSE, Dow Jones or Nikkei. The Global Leaders Equity Fund aims to achieve longterm capital growth over the economic cycle by selecting no more than 25 equities with best-in-class management and solid balance sheets. One can invest directly offshore or utilise the Ashburton Global Leaders Equity ZAR Feeder Fund. Flows into the ZAR-based Global Leaders feeder fund have quadrupled in the last six months. Whichever the route to offshore, it makes sense to invest in leading companies, technologies and industries, exposure to which is often not available on the JSE.
