MoneyMarketing September 2021 Offshore Supplement by New Media B2B

Offshore SUPPLEMENT

WHAT’S INSIDE ...

Focus on quality companies that can weather shortterm inflationary pressures

How platforms help to navigate the complex investment landscape

The financial planning advantages of offshore endowments

In the second half of 2021, a range of economic factors are front of mind for investors and asset managers alike

The most effective way to invest offshore is to use the services of a reputable and established offshore investment platform

An endowment ensures the investor’s estate is not subject to foreign inheritance tax

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30 September 2021

OFFSHORE SUPPLEMENT

It’s not just about investment returns BY WAYNE SOROUR Head: Sales and Distribution, Old Mutual International

s the world continues to grow into a global network, so do the global tax laws applicable to investors’ worldwide assets. Even though we have universally become much more integrated, failing to carefully consider the tax implications of where one invests could create unnecessary costs and expenses for the investor and their heirs. The importance of diversification It makes sense for South Africans to invest a portion of their wealth offshore and take advantage of the benefits of diversification. The primary benefit is the diversification associated with investing in global asset classes. The role of an investment portfolio is to reduce risk, which is particularly relevant when the assets outor under-perform at different points in the market cycle. But more than this, in offshore markets investors have access to markets and sectors that are either simply not available in South Africa, or provide more choice through which South African investors can access a world of growth opportunities. The purpose of investing offshore is to reduce the concentration risk that comes with exposing all your investments to one market. Tax considerations High-net-worth individuals (HNWIs) should take their annual allowance of R10m offshore. SARS and SARB clearance is required for this amount, it can be done every year, and there is no lifetime limit. So over ten years, they could invest R110m offshore as an individual or R220m as a couple. Clients can also use their discretionary R1m a year, which requires no clearance, to get that diversification and exposure. Money externalised in this way never has to be repatriated. It can be invested offshore or kept in a bank account for use when travelling. Also, a lot more South African children are getting educated and living abroad, and many families are establishing an education fund abroad for that purpose. UHNWIs can apply to take out more than R10m a year if they submit a Special Concession application

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to SARS & SARB. A Tax Clearance Certificate, in the prescribed format, must always accompany the application, and they need to ensure that their tax affairs are 100% in order. Rand hedging is also a factor, as many investors continue to measure their portfolio performance in rand rather than hard currency. Estate considerations Potential investors should look at the estate planning implications when investing offshore. Many people simply look for the best returns – but tax and inheritance issues are equally important. We have legal mechanisms that make offshore investing easier, with beneficiaries being nominated to inherit the assets abroad. Jurisdictions such as the US and UK are increasingly eyeing the estates of non-citizens investing in certain assets physically situated within their jurisdiction, called the situs tax. On death, South African residents are liable for estate duty based on their worldwide assets. Estate duty is currently levied at a rate of 20% in the case of an estate less than R30m, and at a rate of 25% on the value above R30m. However, both the UK and the US also levy an estate duty on certain situs assets. In the UK, this is known as inheritance tax, and in the US it’s called estate tax. Collectively, they are known as situs taxes. In the UK, 40% inheritance tax will be levied on situs assets over the value of £325 000 (including fixed property). Any amount falling below the £325 000 threshold is known as ‘the nil rate band’ and is free from situs tax. Each individual receives this £325 000 exemption. In the US, the threshold for estate tax is much lower at only US$60 000. The top bracket for estate tax is 40% on US situs assets. In contrast to the UK, the US offers no spousal exemptions or rollovers, unless the spouse is a US citizen. On death, HNWIs may be liable for 20% South African estate duty, as well as a potential 40% situs tax on their US and UK situs assets. Although there are double taxation agreements in place, this would still result in payment of a net tax of 40%, instead of the 20% estate duty payable in South Africa.

Asset swaps Investors also need to ensure they have access to capital abroad, which is the primary reason for taking funds offshore. If the investor’s sole interest is the offshore return (as in the case of a pension fund), then an asset swap mechanism is the preferred vehicle. The major difference between capital physically taken abroad, and capital using an asset swap mechanism, is that in the case of the latter the money ultimately must be repatriated, having earned offshore returns in the interim. Asset swaps are more convenient for smaller amounts where there is little point in the effort of going through SARS and being audited. At Old Mutual International, we focus mainly on the direct route, but can access asset swap capability through relationships we have with several investment houses that do not use their full capability.

“Many people simply look for the best returns – but tax and inheritance issues are equally important” With an asset swap, an investor buys a randdenominated unit trust through a South African financial institution. The unit trust company then uses its asset swap capability to invest the funds offshore. The investment returns are repatriated and paid out in rand. Asset swaps are ideal for investors who do not need to physically move their funds offshore but would still like to profit from investing in overseas markets. In conclusion, like every financial decision, investing offshore needs to be tailored to investors’ needs. To find the right fit, an investor must evaluate different scenarios in terms of their investment goals – and this should be done with the assistance of a financial planner to customise a unique plan for an investor’s lifestyle plan.

99.5% OF THE WORLD’S MARKETS ARE WAITING. EXPAND YOUR PORTFOLIO WITH US. There’s never been a better time to consider diversifying your offshore investments into our Investment Portfolio+. Benefits include: ■

Investing and managing your assets in hard currency.

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Ease of tax administration.

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No UK or USA inheritance tax implications (situs).

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Appointed beneficiaries have immediate access to capital and can take ownership of the policy or surrender it, all while saving on executor fees.

If you’d like to find out more about Investment Portfolio+ and our wide range of offshore solutions, contact your financial adviser, your regional offshore specialist or visit www.omi-int.com

INTERNATIONAL DO GREAT THINGS EVERY DAY Old Mutual Life Assurance Company (SA) Limited is a licensed FSP and life insurer.

30 September 2021

OFFSHORE SUPPLEMENT

Focus on quality companies that can weather shortterm inflationary pressures

Thematic investing can better position portfolios for the future BY KENNY RABSON CEO, Discovery Invest

n this changing world, trends are emerging that are set to transform investment markets globally. Four ‘megatrends’ are widely recognised as macroeconomic forces that will fundamentally shape the world going forward. In so doing, they are set to have a profound influence on how we address some of society’s biggest challenges and they will create immense opportunity. The South African equity market, which represents less than 1% of the global equity market, does not offer much exposure to these global megatrends, so the new Discovery Global Megatrends Fund is an option for unlocking these opportunities and for providing diversification in portfolios. Discovery Invest recently partnered with Goldman Sachs Asset Management to introduce a new investment opportunity, giving access to a range of thematic equity portfolios designed to give exposure to global megatrends. Goldman Sachs Asset Management is a global leader in the thematic investing space, with over 20 years of experience and a strong management track record.

“Trends are emerging that are set to transform investment markets globally” The Discovery Global Megatrends Fund is available on both Discovery Invest’s local and global platforms. The Fund provides clients with unique exposure to these four global megatrends by allocating investments equally in four Goldman Sachs Asset Management equity portfolios, each aligned to one of these

megatrends. The four megatrends are: • Technological advancement: Increased connectivity and data are enabling machine-driven insights that will transform how we operate. With younger generations’ increasing comfort in using technology, new business models and opportunities will emerge. The artificial intelligence market will grow to a $190bn industry by 2025, as MarketsandMarkets analysis shows. • Environmental sustainability: The urgent threats of climate change and damage to the environment leave global economies with no choice but to turn to green alternatives for energy, food and transport. There is an urgent need for green alternatives – the United Nations predicts a 40% shortfall of available global water supply by 2030. • Future of healthcare: Genomics and precision medicine are set to revolutionise healthcare. With continued innovation in gene mapping and sequencing, paired with the decreasing cost of doing so, personalised treatments with improved outcomes are becoming the way forward. • New-age consumer: Millennials have become the world’s most powerful consumer force. With 2.3 billion people, millennials are the largest consumer cohort. As they enter their prime earning years and increase their spending, they will drive a new age of consumption. Millennials are creating a potential long-term, secular growth opportunity for investors.

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n the second half of 2021, a range of economic factors are front of mind for investors and asset managers alike. Most important, perhaps, are the shorter-term inflationary pressures we are currently facing, and the longer-term macroeconomic challenges that underpin the search for a global recovery from the pandemic. At Marriott, our key focus is to identify companies that are well suited to the long term, and that can effectively deal with shorter-term inflationary pressures. It is no surprise that recent inflation numbers, such as the 5.4% headline CPI in the USA, have been elevated. Base effects, global shipping challenges, manufacturing bottlenecks and unprecedented economic stimulus are all contributing towards higher inflationary numbers. In order to effectively combat input cost inflation, companies must be able to utilise pricing power to maintain their margins. Although inflation and the reopening of economies have been areas of focus for market commentators, we must still consider the underlying global macroeconomic conditions. In 2020, global debt climbed to an all-time high: approaching $300tn. Further, it has become evident that the pace of economic recovery is very uneven across the globe. China’s economy managed to surpass pre-pandemic levels during 2020, and the US economy is expected to do so in the near future, if it hasn’t already. The UK, however, is only due to recover to pre-pandemic levels in the middle of 2022, and many other countries may not recover until 2023 or beyond. The elevated debt levels and uneven global recovery are likely to weigh on global growth. Should investors be worried? It depends on the type of companies they are invested in. Proctor & Gamble, for example, a company held in our international equity portfolios, has an excellent track record of growing dividends even through market and economic turmoil – as demonstrated in the graph below. They have increased dividends 65 years in a row, including a 10% increase earlier this year (compared to a double-digit decline globally). BY SCOTT COOPER Investment Professional, Marriott

Aside from an excellent track record, the company boasts a strong balance sheet, is diversified across countries and product lines, and holds market-leading positions resulting in powerful brand loyalty and pricing power. Last year, Proctor & Gamble was able to grow its organic revenue and core earnings per share by 6% and 11% respectively despite the pandemic and, looking forward, has already announced price increases for key product lines later in the 2021 calendar year. At Marriott, we believe there are a range of companies that are well suited to the long term and which can effectively deal with short-term inflationary pressures. Companies of this nature tend to be less volatile and more resilient, meaning that outcomes for investors are more predictable. Our international equity portfolios contain many such companies. These portfolios can be accessed via: • Marriott’s offshore share portfolio (International Investment Portfolio) • Marriott’s international unit trusts (using your annual individual offshore allowance of R11m) • Marriott’s local feeder funds, which invest directly into our international unit trust funds (rand-denominated).

International Investment Portfolio Invest offshore in high quality, dividend-paying companies.

More Predictable Investment Outcomes Contact our Client Relationship Team on 0800 336 555 or visit www.marriott.co.za

30 September 2021

OFFSHORE SUPPLEMENT

A well-diversified, all-weather portfolio

020 was a powerful year for select consumer discretionary, technology and digital-related companies, where the COVID-19 pandemic provided an acceleration in take-up of their products and services. Against this backdrop, returns from the PPS Global Equity Fund were particularly strong as investments in companies such as Tesla and Amazon generated strong returns over the year. From early November 2020, following the announcement of several effective vaccines, markets turned their attention to companies that had been previously neglected during the relatively narrow market rally of 2020. As inflation expectations normalise and economic activity is forecast to rebound following the pandemic shock, the economic backdrop is likely to be supportive of a broader range of companies. For portfolio managers in the PPS Global Equity Fund, current investment opportunities are not considered a binary choice; cyclical and secular growth opportunities co-exist in the portfolio, which is underpinned by a broad base of core investments. The portfolio is built on a companyby-company basis by a team of portfolio managers who are given the freedom to make individual high-conviction, long-

term investment decisions. The portfolio construction has been deliberately designed to achieve cognitive diversity and ensure a well-diversified portfolio. The result is a portfolio with more than 300 stocks, which remains balanced and diversified across regions, sectors, industries and, very importantly, investment styles. Against the current market backdrop, companies that the fund invests in can be categorised as follows: economically sensitive companies (e.g. JPMorgan Chase, Airbus and LVMH), companies aligned with long-term secular growth trends (e.g. Tesla, Amazon, PayPal, TSMC), and broad foundations, a core set of investments that provide a broad and stable foundation to the portfolio (e.g. Nestle, Microsoft). Long-term resilience Over the longer term, prolonged growth or value-driven market cycles have not mattered for the strategy when it comes to generating positive excess returns. The strategy employed has outperformed the global equity market during every major growth and valuedriven market cycle over the last 46 years, with the exception of a short period in the mid to late 1980s, which was largely a

“The portfolio construction has been deliberately designed to achieve cognitive diversity and ensure a welldiversified portfolio” consequence of being underexposed to Japanese companies at the height of the Japan equity market bubble. During its lifetime, the strategy has navigated energy crises, runaway inflation, swings in exchange rates, multiple recessions (and recoveries), financial market bubbles, central bank monetary policy experiments, changing patterns of global trade, and a global health pandemic. Its consistent results have not been achieved by correctly timing inflection points in markets or having a distinct (and in favour) investment style. Instead, the consistency of the strategy’s excess returns lay in its long-term investment horizon and a well-diversified core portfolio. The PPS Global Equity Fund is managed

by partnership manager Capital Group. For more information, visit www.pps.co.za Disclaimer: This information is not advice, as defined in the Financial Advisory and Intermediary Services Act. Collective Investment Schemes in Securities (CIS) are generally medium- to long-term investments. The value of participatory interests (units) may go down as well as up, and past performance is not necessarily a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending up to 10% of the market value of the portfolio to bridge insufficient liquidity. The manager does not provide any guarantee either in respect of the capital or the return of a portfolio. Certain funds may be exposed to foreign securities and as such, may be subject to additional risks brought about by this exposure. The PPS Global Equity Fund is registered and approved for marketing in South Africa under section 65 of the CISCA. The PPS Global Equity Fund is a sub-fund of the Prescient Global Funds ICAV. For more information visit www.prescient.ie. PPS Multi Managers has appointed the Capital Group as the Investment Manager of the PPS Global Equity Fund. PPS Investments Group is a division of PPS, a Licensed Insurer and Financial Services Provider. PPS Investments Group consists of the following authorised Financial Services Providers: PPS Investments (Pty) Ltd(“PPSI”), PPS Multi-Managers (Pty) Ltd(“PPSMM”) and PPS Investment Administrators (Pty) Ltd(“PPSIA”); and includes the following approved Management Company under the Collective Investment Schemes Control Act: PPS Management Company (Pty) Ltd (RF)(“PPS Manco”). This document is for information purposes only and does not constitute or form part of any offer to issue or sell or any solicitation of any offer to subscribe for or purchase any particular investments. Opinions expressed in this document may be changed without notice at any time after publication. We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable directly or indirectly to the use of or reliance upon the information. There are risks involved in buying or selling any financial product.

How platforms help to navigate the complex investment landscape BY ROBERT RHODES Managing Director, Momentum Wealth International

n a world of ever-increasing investment complexity, platforms are evolving to help advisers and investors make sense of the global investment landscape. The reasons for investing offshore are well documented and include valuable diversification benefits through exposure to different countries, industries, companies and currencies. However, the global toolbox for investing is extensive. Advisers need to make complex decisions apart from the product decision – which mix of countries, asset classes, industries and companies has the highest probability to deliver the required investment outcome for their clients. It is no wonder that many advisers look to investment professionals to help them with some of these decisions. But complex choices remain. In South Africa, there are around 1 700 collective investment schemes; globally, there are more than 126 000 regulated funds1. How do you start to construct a portfolio of funds given all this choice? A key decision is how much control the adviser and client want over currency and asset allocation. You can

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retain a high level of control by investing in a mix of funds and exchange traded funds (ETFs) that are asset class, region or sector specific. Or leave some of the decisions to an investment manager by investing in global asset class funds such as global equity or global fixed income. Or you can leave all these decisions to an investment manager and invest in balanced funds. Whichever route you take, one or more investment managers need to be selected, which is an equally complex decision. Should a local investment manager be selected for the job, or a global investment manager, or a local investment manager who has partnered with a global investment manager? And the complexity doesn’t stop there. Not all funds are created equal. Funds come in different legal forms such as unit trusts, corporate structures, and partnerships, with each offering different levels of investor protection. Funds also use different administrators, custodians and auditors. As with everything, there are A-league players and B-league players. And the jurisdiction of the fund is also important. All of these decisions affect the probability of a successful investment outcome for your clients and their personal investment goals. The most effective way to invest offshore is to use the services of a reputable and established offshore investment platform. Momentum Wealth International was established in Guernsey in 1999. It offers an efficient regulatory and fiscal framework together with investor protection policies, and provides choice, simplicity, transparency and aggregation benefits. Platforms have continued to develop to stay relevant as technology and the

investment world changed – offering access to a broader range of assets classes and investment options, including ETFs and shares, and sophisticated portfolio management systems to power discretionary fund managers (DFMs) – all in a digitally enabled and ‘always on’ world.

“The most effective way to invest offshore is to use the services of a reputable and established offshore investment platform” However, with the complex choices facing advisers, platforms must play a key role to help advisers and their clients make sense of the complexity of choice. An offshore platform provides up-to-date information and tools to enable advisers not only to construct the most suitable investment solutions for their clients, but also to provide a personalised service as efficiently as possible. This helps advisers focus on what is important – their relationship with clients and helping them to achieve their personal investment goals. 1

https://www.asisa.org.za/ and https://www.statista.com/ 2 August 2021

Momentum Wealth International Limited (FSP 13495) is an authorised financial services provider in terms of the Financial Advisory and Intermediary Services Act No 37 of 2002 in South Africa. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.

Celebrating 25 years of helping people on their investment journey to success.

At Momentum Wealth, personal relationships and strong partnerships are in our DNA. With us, financial advisers and clients are not just numbers – they are our friends and our family. Together we help people make their dreams and aspirations come to life with their personal portfolios. When something is personal, it really matters. That is why with us, investing is personal. Here’s to 25 years of continual innovation and investment excellence! Speak to your Momentum Consultant or visit momentum.co.za Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services provider. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406) (NCRCP173).

Momentum Investments

@MomentumINV_ZA

Momentum Investments

MW-859-AZ-7009-CL

30 September 2021

OFFSHORE SUPPLEMENT

Unpacking the risks from regulatory change in China For Chinese companies, regulatory change is a perennial risk. In July, the government gave investors a stark reminder of that risk when it announced sweeping changes to China’s online tutoring industry. Amid other headlines, this led to a broad sell-off of Chinese technology stocks. Was this panic warranted? Rob Perrone, a member of the team of Investment Counsellors at Allan Gray’s offshore partner, Orbis, discusses. BY ROB PERRONE Investment Counsellor, Orbis

concerns. Gaming remains a great business for NetEase and Tencent. Looking across recent Chinese regulatory headlines, some common threads emerge: Don’t squeeze families, customers, employees, or small businesses. Don’t abuse a monopoly position to hurt competition. Don’t raise capital without the local regulator’s blessing. Don’t be greedy or sloppy when collecting personal data. Be responsible corporate citizens. Many of these actions mirror rules already in place in the US and Europe. Of course, the rule-making process in China is less transparent, less predictable, and often more sudden. That increases risk, which we manage with one eye on valuation and the other on portfoliolevel exposures. If we could buy these businesses in the US, we would be willing to pay more for them and hold more in

them. But they are in China, and while we continue to find our Chinese holdings very attractive, we have resisted the urge to add materially to the Orbis Global Equity Fund’s already-large overall exposure. The good news, however, is that we do not believe the Chinese government is out to destroy the tech sector. Here, we have been encouraged by the efforts of China’s state media to calm local investors, and by the securities regulator telling international banks that the country wants to regulate – not ban – foreign listings and so-called variable interest entities (VIEs). If anything, the experience of NetEase, Tencent and Alibaba over the years suggests that innovative companies can do well even under tighter rules. China’s technology leaders have proven themselves to be highly adaptable, and those that continue to adapt should continue to thrive.

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hina’s top government bodies recently issued new guidance overhauling parts of the tutoring industry. The changes were announced in an unusually abrupt way, so uncertainty is unusually high. The news naturally hit shares of online tutoring services, but the pessimism extended to far larger companies as well. For Chinese technology company NetEase, along with larger peers like Tencent and Alibaba, the regulatory fear is not about what has happened, but what could happen next. (Tencent is the key underlying holding of Naspers, a large position in several Orbis and Allan Gray funds, and Alibaba is a significant holding in some funds.)

The rapid pace of regulatory scrutiny is unusual, but the broader regulatory push is not new. Alibaba has been under intense scrutiny since last November, when the government abruptly scrapped the IPO of its affiliate Ant Financial. Alibaba has met with regulators, paid fines, and ceased practices like forcing merchants to ‘choose one of two’ e-commerce platforms. E-commerce remains a great business for Alibaba. Tencent has also weathered scrutiny, and has likewise met with regulators, paid fines, and changed some of its advertising practices. Advertising remains a great business for Tencent. And a few years back, both NetEase and Tencent faced a suspension in video game approvals. They worked through it, adding new player verification and child protection measures to address government

Why limit yourself to only 1%? Discover the full picture by investing offshore with Allan Gray and Orbis. Most investors tend to focus their attention on seeking opportunity locally, but with South Africa representing only around 1% of the global equity market, we understand the importance of seeing the full picture and unlocking investment opportunities beyond the local market. That’s why Orbis, our global asset management partner, has been investing further afield since 1989. Together we bring you considerably more choice through the Orbis Global Equity Fund and Orbis SICAV Global Balanced Fund.

Invest offshore with Allan Gray and Orbis by visiting www.allangray.co.za or call Allan Gray on 0860 000 654, or speak to your financial adviser.

Allan Gray Unit Trust Management (RF) (Pty) Ltd (the “Management Company”) is registered as a management company under the Collective Investment Schemes Control Act 45 of 2002. Allan Gray (Pty) Ltd (the “Investment Manager”), an authorised financial services provider, is the appointed investment manager of the Management Company and is a member of the Association for Savings & Investment South Africa (ASISA). Collective investment schemes in securities (unit trusts or funds) are generally medium- to long-term investments. The value of participatory interests or the investment may go down as well as up and past performance is not necessarily a guide to future performance. The Management Company does not provide any guarantee regarding the capital or the performance of the fund. The Orbis Global Equity Fund invests in shares listed on stock markets around the world. Funds may be closed to new investments at any time in order to be managed according to their mandates. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees, charges and maximum commissions is available on request from the Management Company.

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2021/08/06 08:32

30 September 2021

OFFSHORE SUPPLEMENT

Passing the point of maximum liquidity should concern investors BY PHILIP SAUNDERS Co-Head: Multi-Asset Growth, Ninety One

arket participants have been fretting about inflation risks since the global economic recovery gained real momentum. The prevailing narrative is that the Federal Reserve has lost its inflation discipline and is determined to ‘run the economy hot’. Headline inflation prints seemed to have fuelled this anxiety, but they mainly reflect low base effects, caused by the COVID-19 plunge in prices. Supply chain disruptions have also pushed up inflation. Central banks have generally viewed higher inflation as transitory, and their focus has been on offsetting the potentially depressionary plunge in demand. They argue that supply constraints, caused by the COVID-19 shocks and the strength of the recovery, have given rise to short-run inflation pressures, which will dissipate. However, this has evidently not allayed the concerns of market participants that we may be witnessing a structural shift in inflation, which is being entrenched by ultra-loose monetary policies. While global headline inflation rates have increased sharply, shortterm concerns around inflation seem overdone. US breakeven inflation rates

have already risen substantially to reflect a higher long-term inflation outcome than the Fed’s target rate. As is often the case, the consensus is arguably conflating short- and longerterm inflation risks. We believe the headline inflation numbers will now flip to surprise positively over the balance of the year as base effects fall away. But the debate will continue to rage. The idea that the Fed has given up on its target of anchoring inflation expectations on average around 2%, and that as a consequence we have entered a world of perpetual dollar debasement, is questionable. While we expect inflation to move higher than it was in the post-Global Financial Crisis period, we do not believe that we are going back to the high-inflation world of the 1970s. We believe inflation risks are fully priced into markets, at least on a medium-term basis. The post-COVID-19 economic recovery has been more dramatic than most market participants expected. The recovery is set to continue over the next 12 months. Vaccine rollouts are well underway, which should allow a return to normal social conventions across major developed market nations in the second half of the year. The rosy growth outlook and higher inflation projections have recently sparked a more hawkish tone from the Fed, bringing the prospect of tapering closer. The market had previously

Find opportunity in change Partner with an investment manager who understands change, knows how to respond to it and even get ahead of it. That’s when change changes… to opportunity.

anticipated news on tapering only in December, but the Fed is likely to get on with it and release details on how it intends to curb its bond purchases as early as September. US real yields are likely to rise from here as the Fed moves towards tapering, with implications for asset markets. What’s more, the Fed has signalled that there may be at least two interest rate hikes in 2023, again much sooner than previously expected. The Fed’s more hawkish tone has come as a wake-up call to investors who are in danger of becoming addicted to liquidity. Investors need to pay close attention to policy and policy shifts. The Fed is telling the market that it will not be replenishing the liquidity ‘punch bowl’ ad infinitum; it will be progressively reducing the level of quantitative easing support over time. We still have very loose monetary conditions. Growth is very buoyant but given the ‘primacy of liquidity’, inflections in liquidity conditions at the margin often have a disproportionate impact. This policy change should give investors who remain very long risk assets, pause for thought – especially given current valuations. Credit spreads are again at historically low levels and equity market valuations are elevated, leaving markets potentially more vulnerable to bad news. In conclusion, the size of fiscal and monetary policy responses remains significant, but it appears that we have passed the point of maximum liquidity. Policy shifts in the US – and elsewhere – will impact liquidity, which in turn is likely to create headwinds for growth rates and risk assets.

Investing for a world of change

Start your investment journey ninetyone.com/change-changes Ninety One SA (Pty) Ltd is an authorised financial services provider.

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30 September 2021

OFFSHORE SUPPLEMENT

Why global multi-asset class funds are a must-have moving into a post-COVID world

SOPHISTICATED THINKING GOING INTO HOW WE INVEST BEYOND EQUITIES

BY CHRISTO LINEVELDT Investment Specialist, Coronation

nvestors seeking offshore exposure may be wondering how best to go about it when traditional global asset classes look fully priced and many risks dominate the news flow. We believe that maintaining a well-diversified portfolio that comprises more than just one asset class remains the most appropriate way to navigate a challenging investment environment. Here’s what investors need to consider: Pressures are building Most developed market economies are in the midst of a robust economic recovery that has provided tailwinds for equity markets and raised the prospect of higher global inflation. The two factors driving these recoveries are the amount of stimulus injected into these economies and the

progress these countries have made in vaccinating their populations. Savings rates are up, balance sheets are in good shape, interest rates remain low and economic lockdowns over the past year have meant significant pent-up demand is waiting to be fulfilled as conditions improve. Against this backdrop, it’s not surprising that inflationary pressures are building up. Diversification and active management as a better forward-looking strategy With inflation among many risks facing global investors, we believe alphageneration through selectively identifying attractively priced shares, in addition to diversification into other asset classes, will be a better forward-looking strategy than just owning the index. Our multi-asset class portfolios typically have exposure to 40 - 60 shares, carefully selected out of a universe of 2 500 - 3 500, which means they don’t look anything like the index or our peers. This level of diversification is hard to replicate on an individual basis. Our multi-asset class funds are further differentiated in that we hold many investment opportunities outside the traditional 60% equity/40% bonds multiasset portfolio in order to sweat every basis point of potential returns. Thus, while we continue to believe that it’s essential to have exposure to equities, we believe it is also important to include other assets – such as infrastructure, high yield income, global property and absolute return investments – in our multi-asset class

SOPHISTICATED THINKING GOING INTO HOW WE INVEST BEYOND EQUITIES Investment-grade fixed income Absolute returns

EQUITIES REMAIN THE FOUNDATION WITH WHICH TO ACHIEVE EQUITIES REAL RETURNS REMAIN THE FOUNDATION WITH WHICH TO ACHIEVE REAL RETURNS

Investment-grade fixed income Inflation protection Absolute returns Equity High-yield fixed income Inflation protection

Equity

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NON-EQUITY EXPOSURE

High-yield fixed income Real assets

Source: Coronation

funds. This is especially important in an environment where, in our view, the global bond index as a whole offers a negative real return over the next several years. Each of our global multi-asset class funds benefits from exposure to these non-traditional assets, with the extent of their exposure in the portfolios dependent on the risk budget of the fund. This ranges from around 30% in the Global Capital Plus Fund, with a cautious risk profile, to 25% in the Coronation Global Managed Fund, a moderate risk balanced fund, and around 15% in the more aggressive Global Optimum Growth. The same funds have effective equity exposure of 28%, 59% and 80% respectively, with the balance held in cash and selected fixed income instruments.

Montenegro Citizenship-by-Investment programme to close at end of year esidence and citizenship planning firm Henley & Partners has announced its milestone submission of 100 applications for the Montenegro Citizenshipby-Investment Programme. Of these, 33 international investors and their families have already received both their citizenship and their passports, despite the ongoing disruptions caused by the coronavirus pandemic. This highly sought-after citizenship-by-investment programme is due to close at the end of this year. Rade Ljumović, Director at Henley & Partners in Montenegro, says the programme offers high-networth investors a significant opportunity in a dynamic regional market but there are only a few months left to apply. “One reason for Montenegro’s success is that it caters for investors with a diverse range of interests and requirements. Investors can choose between glamorous seaside resorts where they can invest in new hotels that are being established by reputable developers, including cutting-edge options such as the SIRO brand by Kerzner International and InterContinental. Alternatively, they can opt for the northern parts of the country, where there are exclusive ski and mountain resorts in advanced stages of construction, such as Swissôtel.” Montenegro is currently on the EU’s ‘safe list’ of

Real assets

NON-EQUITY EXPOSURE

countries with relatively low rates of COVID-19 infection, and its passport ranks 45th on the Henley Passport Index, providing its holders with visa-free or visa-onarrival access to 124 destinations worldwide, including Hong Kong, Russia, Singapore, Turkey, the UAE, and the countries in Europe’s Schengen Area. As well as being a NATO member, Montenegro is a recognised candidate for future membership of the EU, with the government’s chief negotiator, Zorka Kordic, recently giving 2024 as the target timeline for Montenegrin accession. Last month, the EU Information Centre in Montenegro published research findings showing that 73.8% of the population supported EU accession, and 86.9% would vote in favour of joining the EU should there be a referendum on the question. The EU ambassador to Montenegro, Oana Cristina Popa, recently noted that the trust of Montenegrin citizens is motivating to the EU and encouraging for Montenegro’s accession. Applicants to the Montenegro Citizenship-by-Investment Programme are required to make a defined economic contribution to the country. In exchange, and subject to a stringent vetting and due diligence process, including thorough background checks by specialised firms, applicants and their families are granted Montenegrin citizenship. The main applicant must be over 18 years of

Building well-diversified portfolios Building portfolios that span six asset classes and look nothing like the index takes extensive research and a significant amount of investment experience and expertise. It is the combination of this expertise and our robust and tried-and-tested investment approach that enables our multi-asset class funds to provide investors with exposure to a wealth of opportunities in traditional and non-traditional asset classes, actively balancing risk and returns to deliver on our investors’ various objectives across the fund range. Coronation is an authorised financial services provider.

age, meet the application requirements, and contribute EUR100 000 to the Government of Montenegro, designated for the advancement of local under-developed, selfgovernment units. In addition, applicants can invest at least EUR450 000 in an approved development project in the capital Podgorica, or in the popular coastal region of Montenegro. Alternatively, they can invest a minimum of EUR250 000 in an approved development project in the northern or central regions of Montenegro (excluding Podgorica). Additional government processing fees and other application fees apply. CEO of Henley & Partners, Dr Juerg Steffen, says the resulting increase in business activity and new employment opportunities created by the programme will benefit all Montenegrins. “Investment migration enables sovereign states such as Montenegro to tap into a new source of sustainable revenue without becoming overleveraged. In the current pandemic environment, as in the wake of previous disruptions such as the 2008 financial crisis, residence and citizenship programmes create significant value both for investors and for sovereign states in need of alternative revenue streams.” Rade Ljumović, Director: Henley & Partners, Montenegro

30 September 2021

OFFSHORE SUPPLEMENT

The financial planning advantages of offshore endowments

outh Africans continue to look for investment opportunities outside of their local market, says Andrew Brotchie, MD of Glacier International. “The local market is tiny, making up less than 1% of the global market. It’s natural that local investors want to diversify – and that’s what we at Glacier International are offering, in the most efficient and effective way that we can.” Offshore wrappers, like Glacier International’s flagship offshore endowment policy, the Global Life Plan, hold assets on the investor’s behalf, providing very good financial planning benefits. “Obviously investors’ access to international investment opportunities is relatively unfettered, but it’s really around things like foreign inheritance tax that there are benefits, making it easier to pass on wealth to future generations,” he adds. By investing in the Global Life Plan, investors are structuring their international investments in a manner that means they don’t need an offshore will. An endowment also ensures that the investor’s estate is not subject to foreign inheritance tax, such as the situs tax that is levied on deceased estates in the US and the UK. “If you’re invested in an asset in either of those countries, they have the right to impose a tax on you upon death, with tax rates of up to 40%, but by using a wrapper like the Global Life Plan, you can mitigate against this,” Brotchie says. “It doesn’t remove the requirement to pay inheritance tax, but it brings the investor back into the local space where tax of 20%, rather than tax of up to 40%, is payable.” Investors can also appoint a nominee for ownership or nominate a beneficiary for proceeds, he adds.

Another benefit of investing in an offshore wrapper is that the life company, rather than the investor, is responsible for any tax due, so the investor has no personal tax to administer. In addition, after a period of three years from inception date, the endowment will not form part of an investor’s insolvent estate and cannot be attached by a creditor. Research shows that around 20% of financial advisers who are advising their clients to invest internationally make use of offshore endowment wrappers for their clients, while 80% use a more simplified approach to international investing, says Brotchie. “This talks to the numbers, but I don’t think it necessarily talks to the size of the use of the different products. I say that because you’ll find that the Global Life Plan is more relevant to clients who have larger offshore portfolios, because of the issues they have when it comes to situs tax and probate.” Brotchie says endowment wrappers are actually priced very competitively when compared with other investment options clients may have. “While fees were something that you wouldn’t want to talk about a decade ago, clients today are more likely to want to engage further on the topic. Now there’s transparency that enables clients to understand exactly what they are paying for. You’ve got the product administration fees, you’ve got the asset management fees, and you’ve got the adviser fees.” While clients have always had access to exchange traded funds (ETFs) through share portfolios, those without share portfolios can now also invest in a select range of ETFs directly on the Glacier International platform. “We’ve

made sure that we can offer a full range of investment options, while also addressing the cost issue,” Brotchie explains. “This eliminates some of the complexity and costs of being able to get access to ETFs, something that has been growing in popularity among our clients and advisers for a number of years now. Costs are becoming more important and if you can give investors alternatives that reduce costs, it’s something you should be doing.” Glacier International’s offering is made up of core ETFs that cover the main markets in the world, including the MSCI World, MSCI Emerging Markets, S&P 500, Euro Stoxx 50, FTSE 100, Japan, and Developed Markets Property Yield. “We also have China and tech ETFs, because investors may want to take exposure to something that interests them, but they don’t necessarily want to go to an active manager. They just want exposure, and an ETF is an easy way to achieve that. Our research team selects the ETFs, while we also work with reputable providers. For example, we offer iShares from BlackRock.”

Andrew Brotchie, MD, Glacier International

Gain convenient and efficient access to world markets Glacier International now offers direct access to Exchange Traded Funds. Diversify your portfolio across different sectors and geographies, through direct and cost-effective access to a selection of core Exchange Traded Funds, or ETFs, including the MSCI World, MSCI Emerging Markets, S&P 500, Euro Stoxx 50, FTSE 100, Japan, and Developed Markets Property Yield.

Visit www.glacierinsights.co.za for more information. Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers. Glacier International is a division of Sanlam Life Insurance Ltd, a licensed financial services provider.

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