NFB Sensible Finance Magazine Issue 30

A FREE publication distributed by NFB Private Wealth Management

NFB

Eastern Cape's Community...

Issue 30 July 2015

PERSONAL FINANCE Magazine

NVEST FINANCIAL HOLDINGS LISTS ON THE JSE

BUSINESS TRAVEL INSURANCE Frequently asked questions

TAX-FREE SAVINGS ACCOUNTS Are they relevant for affluent investors?

NFB IS CELEBRATING ITS YEARS ANNIVERSARY

30 private wealth management

“Based on my calculations, I can retire about 5 years after I die.”

Anonymous, 2014

Are you this “guy”?

Don’t be. Talk to an NFB Private Wealth Manager today to plan your financial future. fortune favours the well advised

Contact one of NFB’s financial advisors: East London s tel no: (043) 735-2000 or e-mail: info@nfbel.co.za Port Elizabeth s tel no: (041) 582-3990 or e-mail: info@nfbpe.co.za Cape Town s tel no: (021) 202-0001 or e-mail: info@nfbct.co.za

web: www.nfbpwm.co.za NFB is an authorised Financial Services Provider

private wealth management

ED’S LETTER editor Brendan Connellan bconnellan@nfbel.co.za

Contributors Zukiswa Sonjica (NFB East London), Duncan Schwulst (Prudential Investment Managers), Nonnie Canham (NFB East London), Grant Berndt (Abdo & Abdo), Cover Magazine – August 2014 (contributed by NFB Insurance Brokers), Alex Grunewald (NFB Port Elizabeth), Patrick Sheehy (Glacier by Sanlam),Brendan Connellan & Ted Keenan, BrightRock, Bryce Wild (NFB East London), Liberty Group, Shaun Murphy (Klinkradt Murphy), Xolisa Funani (NFB Port Elizabeth), Debi Jacobs (IE&T), Travis McClure (NFB East London), Mandy Botha (NVest Securities)

layout and design Jacky Horn TA Willow Design jaxx@at-media.co.za

Photos used in this magazine - 123rf.com

Advertising Robyne Moore rmoore@nvestholdings.co.za

Address East London Office NFB House, 42 Beach Road Nahoon, East London, 5241 Tel: (043) 735-2000 Fax: (043) 735-2001 E-mail: info@nfbel.co.za Port Elizabeth Office Ground Floor, Building 6, Ascot Office Park, Cnr. Ascot and Conyngham Roads, Greenacres, 6045 Tel: (041) 582-3990 Fax: (041) 586-0053 Email: info@nfbpe.co.za Web: www.nfbpwm.co.za The views expressed in articles by external columnists are the views of the relevant authors and do not necessarily reflect the views of the editor or the NFB Private Wealth Management. ©2015 All Rights Reserved.

No part of this publication may be reproduced in any form or medium without prior written consent from the Editor.

a sensible read

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s many of you may have heard or read, 2015 is a milestone year for NFB Private Wealth Management, its holding company, NVest Financial Holdings and other NVest Financial Holdings Group companies.

Firstly, we have just reached our 30's! NFB originally opened its doors in Port Elizabeth in 1985, with the East London office opening shortly thereafter in 1986 and the business has grown from strength to strength since that day, with April 2015 representing the company's 30 year anniversary in business. The Company now has approximately R7 billion discretionary assets under management; with total NVest Group assets under management and administration currently at around R14.5 billion. NFB is also now represented in East London, Port Elizabeth, Cape Town and Johannesburg.

Secondly, and in celebration of NFB's transition from a twenty to a thirty year old (well, in truth that wasn't the reason, but the timing is certainly fitting), NVest Financial Holdings Limited, which was actually (in 2008) born out of NFB's existence, listed on the AltX Exchange of the JSE on 29th May and closed its first day of trading at more than double its listing price.

The success of the group is essentially testament to the attention that NFB and NVest have paid to our clients over the years.

Although we fully understand the importance of having very strong processes in place, ensuring that any services offered and advice given are solid, and ensuring that the business generates profits for shareholders, we also realise that our business is, first and foremost, one that relies on strong relationships based on trust.

It is these relationships to which we owe a great deal of our success and it is these relationships that we will continue to build, nurture and protect by building trust through transparency, taking responsibility for the faith that our clients place in us and being ethical and fair in all of our client dealings.

Lee Iacocca, a business executive best known for his revival of the Chrysler Corporation in the 1980's, put it this way: “In the end, all business operations can be reduced to three words: people, product and profits. People come first.”

Thank you to all those people who put faith in our business and helped us reach the successes that we have. We hope that we will continue to deliver on, and exceed, your expectations of us.

Yours in hope and optimism.

Brendan Connellan - Editor and Director of NFB Email your full name to info @nfbel.co.za to subscribe to NFB 's free economic electronic newsletters. another aspect of our comprehensive service

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SENSIBLE CONTENTS JULY 2015

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FINDING GROWTH OPPORTUNITIES IN THE MARKET Is your portfolio correctly aligned to your risk profile? By Zukiswa Sonjica, Financial Paraplanner - NFB East London.

LISTED PROPERTY IMPROVING, BUT STILL EXPENSIVE Expect more bouts of volatility. By Duncan Schwulst, Prudential Investment Managers.

WHAT TO CONSIDER WHEN DOING A SECTION 14 TRANSFER OF YOUR RA By Nonnie Canham, Financial Paraplanner - NFB East London.

10 SWITCHING OFF YOUR TENANT'S LIGHTS What is a landlord to do with a nonpaying tenant? By Grant Berndt - Abdo & Abdo.

11 BUSINESS TRAVEL INSURANCE Frequently asked questions. Contributed by NFB Insurance Brokers (source: Cover Magazine – August 2014).

12 BROADENING OUR HORIZONS It is now easier to have some off-shore exposure in your investments. By Alex Grunewald, MD/Private Wealth Manager - NFB Port Elizabeth.

13 TAX-FREE SAVINGS ACCOUNTS Are they relevant for affluent investors? By Patrick Sheehy, Glacier by Sanlam.

14 THE AFRICAN DRUM BEATS AS WE CELEBRATE THE LISTING OF NVEST FINANCIAL HOLDINGS LIMITED ON THE ALTX By Brendan Connellan & Ted Keenan.

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16 IS LIFE COVER REALLY FOR LIFE? Contributed by BrightRock.

17 TFSA'S VS RA'S Do Tax-Free Savings Accounts effectively replace Retirement Annuities? By Bryce Wild, Private Wealth Manager - NFB East London.

18 INVEST TODAY FOR THE FUTURE OF YOUR CHILDREN Giving your children the very best start in life. Contributed by Liberty Group.

20 MAKING YOUR CONTRIBUTION GO A LITTLE FURTHER By Shaun Murphy, partner at Klinkradt Murphy.

24 ALL ABOUT THE ALTX Shedding some light on the basic questions. By Xolisa Funani, Financial Paraplanner - NFB Port Elizabeth.

26 FREQUENTLY ASKED QUESTIONS REGARDING WILLS, DECEASED ESTATES AND TRUSTS By Debi Jacobs, Senior Estate Administrator - Independent Executor & Trust.

27 Q &A You ask. We answer. Advice column answering your investment, personal finance, life and/or risk insurance questions with Travis McClure, Director/Private Wealth Manager, NFB East London 28 CORPORATE EVENTS OF INTEREST A quick look at South32 and Sirius Real Estate. By Mandy Botha, Portfolio Manager - NVest Securities

SENSIBLE GROWTH

FINDING GROWTH

OPPORTUNITIES IN THE MARKET Is your portfolio correctly aligned to your risk profile? By Zukiswa Sonjica, Financial Paraplanner - NFB East London.

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s many investment managers warn that the high returns achieved in the local equity market is now something of the past, investors are now faced with having to look for growth in other areas in the financial markets. The high risk in the local equity market is no longer rewarded by the double digit return figures to which we have become accustomed. The investment industry is finding it difficult to replicate the returns of yesteryear. So where are they looking for the growth element needed to keep investors happy?

The lower returns forecast and now evident in the local equity markets force individuals to recontextualize the notion of local equity returns. In order to survive the ever changing world of investments, a shift in expectations and ability to adapt to changing financial market environment is essential. Financial advisors are faced with the task of conditioning clients' expectations to the muted returns the local equity market now delivers, and also explaining the possibility of a market crash wiping out returns that might have taken years to attain, as well as the risk of loss of hard earned capital.

The measure put in place to help financial advisors assess and manage clients' expectations is risk profiling. This process allows the advisor to get an idea of how much risk the client is prepared to tolerate, and is used as a guide to determine in which investment structures the client will be most comfortable to place their investment funds. It does not totally eliminate a client's involvement in any particular asset class, but will guide the advisor as to how much of the clients' funds can be placed in so called “high risk - high return� assets, and how much must be protected against the possibility of capital loss.

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The concept of diversification can assist to cushion the effects of sharp movements in the equity markets. A share portfolio needs shares of complementary characteristics to help build a portfolio suited to the financial needs of the individual investor. An individual share, or a group of shares, could react negatively to economic information, while another set of shares may remain unaffected by the same information. Using a diverse selection of shares is essential in providing a balance in the returns attained within the equity asset class. Asset allocation spreads risk across the asset classes, to avoid negative cyclical influences in one particular asset class dragging down overall portfolio performance. On a broader scale, spreading risk across geographical regions prevents political risk and currency risk jeopardising overall investment performance.

We are now placed in a position where we need to search for value opportunities in other asset classes, as well as offshore markets to fill the gap left by the bull market in investment portfolio return. Investors can no longer look to exceptional investment returns fuelling their portfolios, but have to look to making greater contributions towards retirement funds and other investments if they are to achieve financial goals.

Please feel free to contact any of our financial advisors who can examine your investments and ensure that your overall portfolio is correctly aligned to your risk profile and ensure you remain on track to meeting your financial goals in the changing financial environment.

We can be contacted on any one of the following numbers: East London 043-735 2000 Port Elizabeth 041-582 3990 Cape Town 021-202 0001

SENSIBLE CAUTION

LISTED PROPERTY IMPROVING, BUT STILL EXPENSIVE Expect more bouts of volatility. By Duncan Schwulst, Prudential Investment Managers.

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lthough some investors may be tempted to put their money into listed property following a 10% decline in the asset class since the start of May, when it comes to investing in the sector going forward they should exercise some caution. It continues to look somewhat expensive, and also faces headwinds for earnings growth from the prospect of rising interest rates and South Africa's weak economic growth.

Listed property had produced a total return of 38.2% for the 12 months to 30 April 2015, far outstripping the next best performing asset class (14.8% from the FTSE/JSE All Share Index). However, since then listed property has been the worst performer, with a total return of -7.8% (at the time of writing).

In recent years both local and foreign investors have been attracted to listed property shares for the relatively high yields and distribution growth they have offered compared to bonds and cash.

SA Real Estate Investment Trusts (REITS) have also provided earnings that are, when compared to general equities, relatively more stable over time, with a higher level of visibility into their future growth trajectory.

Net rental income growth is underpinned by lease contracts that expire in 2.5 to 3 years on average, and also include above-inflation escalations of around 8% per year historically. At the same time, SA REITS typically pay out close to 100% of their distributable profits to shareholders every year. As a result, listed property company distributions have been less volatile than stocks in the broader general equity universe over time.

These characteristics, combined with relatively attractive valuations, have brought many investors into the sector in the last few years, as has the introduction of the internationally understood REITS structure.

Currently, the one-year forward distribution yield for SA REITS (used as a key valuation measure), at around 7.2%, remains in the bottom

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(expensive) half of the historic range for the sector.

In addition, listed property still looks somewhat expensive when compared to cash, nominal bonds and inflation-linked bonds. Consequently, it is still vulnerable to further de-rating. On the positive side, distribution growth over the coming year is expected to be above inflation at 8.0%. This combines with the 7.2% forward distribution yield for an estimated total return of around 15.2% (assuming further de-rating does not materialise).

With US bond yields already on the rise and South African interest rates expected to move higher, listed property companies could come under pressure from a number of fronts.

Internationally, foreign investors may be tempted to move back to less-risky US assets as their yields move higher. Locally, it's difficult to see how already-low vacancy levels in the retail and industrial sectors (both at around 3.5% to 4%) can continue to fall. Meanwhile, office rentals still face headwinds from the slow-growing economy and high vacancies (at around 9%). Also importantly, property companies could face higher borrowing costs.

How has Prudential responded? After having been overweight listed property for most of 2014, and being well rewarded as a result, as the sector became increasingly expensive relative to most other asset classes we started reducing exposure in our multi-asset funds like the Balanced and Inflation Plus Funds as of December last year. By the start of May we had then moved into a slightly underweight position in most of our portfolios.

We expect more bouts of volatility in the months ahead as expectations for interest rate increases adjust. Investors should therefore exercise caution on listed property and other interest-ratesensitive assets like bonds. However, it's important to note that with an expected total return that is still well above inflation, and with valuations having retreated slightly from very expensive levels, listed property remains a valuable, albeit not yet cheap, component of a diversified investment portfolio.

SENSIBLE DECISION

WHAT TO CONSIDER WHEN DOING A SECTION 14 TRANSFER OF YOUR RETIREMENT ANNUITY

By Nonnie Canham, Financial Paraplanner - NFB East London.

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n the past, many life assurance companies offering Retirement Annuities did not permit you to transfer your RA to other funds. In 2007 the Pension Funds Act made it illegal for the companies to prevent transfers. A section 14 transfer moves your Retirement Annuity from one administrative platform to another. The most common reason for doing this is the allure of better returns on the new platform. There may, however, be unforeseen and unintended consequences to the decision to move a Retirement Annuity that members must consider before deciding to go ahead.

Cost / Possible transfer penalty A Retirement Annuity member sent the following query / complaint to an online legal assistance forum: Hi, I have used a section 14 to transfer a life assurance retirement annuity to a unit trust based RA at the same company. I did this because over a 10 year period the previous RA performed at 3,4 % growth. I have been charged a fee of R65,000 to do this and it took 187 days to take effect. I was sold this RA on the understanding that it would at least maintain inflation, if not the JSE average of 17% per annum. I also am very upset at being charged a 15% value of the RA to make a change.

Can you advise me of an attorney who can assist?

Regards Dr SG What Dr SG was unaware of was that although you may move your retirement funds from a life assurance RA to another RA, life assurance RA's may attract transfer penalties. These are, however,

capped. There is a maximum penalty of 30% should you decide to transfer. Life assurance RA's sold from 1 January 2009 will carry a maximum penalty of 15% on transfer.

With life assurance RA's, commissions and other costs payable by members were distributed over the investment term, ie. if you have an investment term of 20 years and you want to transfer to another RA after only 3 years of making contributions, you will still have to bear the costs that would have been recovered over the remaining 17 years of the RA. Dr SG would therefore not have found much success with his attempts at compensation for the R65,000 penalty charged.

Should you move your RA for better performance, you have to look at the penalty that may be charged and consider how long it will take you to recover the funds on the new platform. If it will take 13 years to recover and you only have 9 years remaining on your RA's term, it may be better to leave it where it is.

NUMBER OF YEARS TO RECOVER: Expected Outperformance

Transfer Penalty and MVA 5%

10%

1%

6 yrs

12yrs 18 yrs 25 yrs 37 yrs 40 yrs

15%

20%

25%

30%

2%

3 yrs

6yrs

9 yrs

13 yrs 16 yrs 20 yrs

3%

2 yrs

4yrs

6 yrs

9 yrs

11 yrs 14 yrs

Source: Investec Asset Management

The calculation assumes that the life assurance RA returns 10% per annum, while the unit trust RA returns either 11%, 12% or 13% per annum, net of fees. Therefore, the assumed outperformance of the unit trust RA is 1%, 2% or 3%, depending on the investor's expectations.

Consequences at Divorce The Divorce Act was amended in 1989 to allow for the division of a 'pension interest' between the divorcing parties. For purposes of the Act, 'pension continued on page 25

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SENSIBLE DECISION

SWITCHING OFF YOUR TENANT'S LIGHTS What is a landlord to do with a nonpaying tenant? By Grant Berndt, Abdo & Abdo.

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hat remedies are available to a landlord when a tenant fails to pay rent and/or their municipal services? Landlords often experience frustration caused by the delays in the legal system in obtaining eviction orders and often would like to take matters into their own hands, to evict tenants. Often the question asked is “can I cut off my tenant's electricity?”

With the current municipal accounting system of the owner being liable to the municipality for the entire municipal account, irrespective of whether the owner is also the occupier of the property or not, and thus the consumer of the services or not, makes this question very pertinent.

A recent decision of the Western Cape High Court, where the landlord applied for a Court Order authorising it to terminate the supply of electricity to the tenant, came out in favour of the landlord. The landlord rented out portion of its building to a tenant carrying on a business as a night club. The landlord receives one account from the Cape Town Municipality and then looks to recover each tenant's pro rata share. The tenant failed to pay its share of electricity from September 2014 and accordingly owed the landlord more than R300 000,00 for arrear municipal services.

In order to prevent the municipality from cutting off the supply to the entire building, the landlord was forced to pay the defaulting tenant's portion, so that the other tenants had a continued electricity supply. The landlord was in effect subsidising the tenant's business.

The matter was further complicated by the fact that the tenant, a Close Corporation, had been deregistered by the Registrar of Close Corporations at the time it entered into the lease and was still deregistered at the time of the Court Application. This made it incapable of entering into any contract and the lease was invalid.

However, the Court still found that even though there was no valid lease, that the landlord could not be expected to subsidise the tenant's

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business and ordered the termination of the electricity supply. The tenant was to allow the landlord's electrician access to the premises in order to disconnect the electricity supply and was also ordered not to tamper with any seal installed by the electrician so as to reconnect the electricity to the premises.

Despite this favourable judgment there are a number of factors to still bear in mind: landlord cannot take the law into his own The hands by cutting off the electricity supply without a Court Order. If the landlord does so, the tenant will be successful with an application to Court for the electricity to be reconnected, even if they are in arrears with rent and/or payment of their municipal service charges. case in question dealt with commercial The property and not residential property. The fact that the property may be used for residential purposes could bring other factors, such as a person's constitutional right to basic human rights, such as electricity supply to one's home, into play. case does also highlight that should one The enter into a lease with a Company, Close Corporation or Trust, that the landlord ensures that the entity is still registered and preferably obtains personal sureties from the directors, members or trustees respectively.

The case does, however, give additional hope and assistance to landlords in their dealings with nonpaying tenants.

SENSIBLE QUESTIONS

BUSINESS TRAVEL INSURANCE Frequently Asked Questions Contributed by NFB Insurance Brokers (source: Cover Magazine – August 2014).

What does a travel insurance policy cover?

The most important benefit on your travel insurance policy is your emergency medical cover.

This covers your medical costs in the event of injury or illness while travelling outside the borders of South Africa.

A comprehensive policy will also include cover for: l Losses incurred due to unforeseen cancellation or cutting your trip short l Death and disability cover l Personal liability cover l Luggage cover l Various other inconvenience benefits

l Frequent Travel Businesses: you may want to

consider one of the Annual Declaration Corporate Travel Policies that can provide business travel cover for all of your staff members. l Expats in Africa: if you are a South African contracted to work in Africa for an extended period, you may want to consider a medical and evacuation-only type of policy

Will I be covered for malaria if I have not taken anti-malaria medication?

Yes. Emergency malaria treatment is covered, but it is recommended that you be aware of the risks associated with contracting malaria and take precautionary measures before departure.

Why is travel insurance important?

Due to the increasing exchange rate of the Rand against many foreign currencies, travelling without travel insurance has the potential to leave you financially crippled.

For example: a routine visit to a GP in the United Kingdom will cost you ÂŁ150 to ÂŁ200. Hospital costs for a serious injury have the potential to run into millions of Rands!

Travel insurance products offer the affordability of purchasing your policy in Rands, with the peace of mind that your medical costs will be covered in the foreign currency you require.

What are the most important travel insurance benefits?

The majority of travel insurance claims are related to medical costs, cancellation expenses and luggage losses. When you compare policies and benefits, it is important that you ensure that you have cover for all three risks.

What business travel options are available to business travellers? l Individual Travellers: you have the option to purchase cover each and every time you travel, OR you can purchase an annual Multiple Entry Policy, which will be activated each time you travel internationally.

What is typically excluded from medical cover?

It is important that you check the full details of your policy for cover, terms and exclusions as cover for pre-existing illnesses is not included on all policies. Other common exclusions include: l Accidents while participating in hazardous pursuits, speed or endurance activities; l Injury / illness resulting from your negligence; l Self-harm; l Injuries / illnesses incurred during illegal activities.

Injuries resulting from your participation in leisure sporting activities are usually covered, but professional sportsmen must apply for specific cover.

Are injuries covered if manual labour is performed on a trip?

Costs incurred for manual labour-related injuries are excluded on standard cover.

However, most comprehensive business travel products have various options for adequate cover in this regard.

How are overseas medical costs paid?

The services of a 24-hour international Continued on page 25...

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SENSIBLE EXPOSURE

BROADENING OUR

HORIZONS It is now easier to have some offshore exposure in your investments. By Alex Grunewald, MD/Private Wealth Manager NFB Port Elizabeth.

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was reminded the other day about our 'varsity days when, as students, we thought we were real movers and shakers as we were able to be "offshore investors".

Cricket was a vital part of our university days and our amazing strategy entailed collecting our old cricket equipment (especially our bats) and giving it to one of the more accomplished cricketers in our group. He was fortunate enough to be selected to go over during the July holidays (middle of UK summer) and play county cricket for some of the minor counties. He would go over with an entire bag of old equipment, explaining to the custom officials that all 6 bats were a vital part of his job and without them he would never be able to perform at his best! He would then shop around for new bats and come back with a bag full of new equipment that was yet to be seen in sunny South Africa. We would obviously then sell these bats on and grow our net wealth (via our offshore investment). Obviously to any custom or import official reading this, they are the ranting delusions of an individual pining back to the simpler days of 'varsity!

What on earth, you may ask, has my reminiscing above have to do with offshore investing? Well the point I am making is that unlike in the old days, it is far easier to have some offshore exposure in your investment mix, and the opportunities to get into offshore investing are far easier than before.

The more common approach to having an "offshore" exposure to one's portfolio is in the form of global funds (rand denominated SA domiciled funds investing overseas). Although one is receiving offshore exposure, one does not have to go through the foreign exchange controls. Any pay

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out though, will occur in rands and be paid out in South Africa.

The other approach, which is becoming increasingly popular, especially in light of the increased amounts SARS is now allowing as far as one's foreign investment allowance (R 10,000,000 per calendar year, effective 1 April 2015, subject to a tax clearance certificate from SARS; R1,000,000 may be transferred abroad per calendar year without the requirement of a tax clearance certificate) is to exchange rands for foreign currency (Pounds, Dollars or Euros) and invest directly offshore. An offshore fund is one that is not domiciled in SA, but in an overseas jurisdiction.

The major advantage of the second option, besides growth in the funds, is that a South African would benefit from the exchange rate (although this is not always the case). What one must take into account, though, in investing directly offshore, are the tax and probate issues that go along with this form of investing. These implications play a vital role in how one structures their offshore investment and needs to be looked at in greater detail before a decision is taken.

In closing, yes it may be great to get products, or in my case a brand new cricket bat, from overseas, but with the infrastructures and technology we now have at our disposal, shouldn't we be looking at how best we can benefit from investing offshore?

Please feel free to call me at our Port Elizabeth office, come in and chat about the options available in purchasing your own "cricket bats" from overseas. And, of course, the coffee is great!

Our contact telephone numbers are: Port Elizabeth 041-582 3990 East London 043-735 2000 Cape Town 021-202 0001

SENSIBLE SAVINGS

TAX-FREE SAVINGS ACCOUNTS Relevant for affluent investors?

By Patrick Sheehy, Glacier by Sanlam.

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outh Africa, on the whole, has a notoriously bad savings rate and the statistics pointing out how many people can actually afford to retire, are regularly reported on. This prompted National Treasury to introduce the tax-free savings product to encourage people to save more. Worldwide, we've seen the positive results in the take-up of these products and we hope to see a similar appetite locally.

The benefits are well-known by now – no tax on interest or dividends received, and no capital gains tax or tax on funds withdrawn. There are a number of options available, depending on the level of risk you wish to take.

What about the affluent client?

Tax-free savings products give all income groups the opportunity to realise tax-free growth. Returns will vary – depending on the product selected – but investors will see a higher tax-saving the longer they are invested. Government has not taken anything away from investors – the tax exemptions on interest income of up to R34 500 and local dividend income of R30 000 still apply on other discretionary savings.

Affluent clients should embrace the opportunity to invest in these products. Personal taxes have just increased and we're likely to see more increases in future in other taxes as well.

Including tax-free savings accounts in your portfolio will shelter you from the effects of any future tax changes.

The reality is that R500 000 over a lifetime – for most South Africans – remains a lot of money.

Parents can also open tax-free savings accounts for their children, i.e. a family of four, with two children, can save up to R120 000 a year, tax free.

Having taken the decision to invest, one needs to look at the different vehicles available and decide on the best one for your circumstances.

Tax-free savings accounts should automatically

form part of this financial planning process. More affluent investors would need to view this decision in the context of their other investments.

If you are currently investing, for example, R5 000 a month into a discretionary savings plan and do not have the means to make additional savings, it will make financial sense to split the investment, i.e. invest R2 500 into the discretionary savings plan and R2 500 into a tax-free savings account.

For higher income tax payers, the saving in tax over the 16 year period (the length of time it will take to reach the R500 000 lifetime limit), could potentially equate to 40% of the contributions made.

These investments also offer flexibility of choice.

Regulation 28 restrictions (which apply to retirement products) do not apply to the tax-free savings products, which means the younger investor can invest more aggressively over the long term.

Weighing up contributions into a retirement annuity (RA) versus a tax-free savings account is a slightly more complex decision. Investors and their advisers would need to look at the advantages and disadvantages from a tax perspective. The RA offers the benefit of tax-deductible contributions and a tax-free lump sum on withdrawal (up to certain limits). It also provides a form of disciplined, forced saving – for those who need that – because the funds can only be accessed from age 55 upwards.

Tax-free savings accounts can complement, but not replace, retirement savings.

The earlier you start to invest in a tax-free savings vehicle, the more you stand to gain in tax savings over time.

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SENSIBLE GROWTH

The African drum beats as we celebrate the listing of NVest Financial Holdings Limited on the AltX

By Brendan Connellan & Ted Keenan.

Andrew Kent (NVFH director), Anthony Godwin (NVFH CEO) and Gavin Ramsay (NVFH director) all beating the JSE drum.

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which listed at R1 per share, began to trade. The market took positively to the Company and its tremendous story and by midday, the price had risen to R2.10, ultimately closing its first day of trading day off at R2.18. At time of writing this piece, the stock was trading at R2.21 and has thus managed to hold onto its gains.

Says Anthony, “The positive response from the market bears out our belief that there is strong confidence in our company, our abilities and our prudent style of management. We have exciting plans for the future of the Group and look forward to delivering above our promises as we have always done; but it's important to highlight that we

he 29th May 2015 was a proud day for NFB Private Wealth Management, NFB Insurance Brokers, NFB Asset Management, NVest Securities, NVest Properties and Independent Executor and Trust as our parent company, NVest Financial Holdings (“NVest”), listed on the AltX exchange of the Johannesburg Stock Exchange.

And, as 2015 also marks NFB's 30th anniversary in business, the timing was certainly appropriate and represented a milestone for the company that ultimately led to NVest's formation.

Shortly after Anthony Godwin, our Chief Executive Officer, beat the JSE drum at 9am to denote NVest's inclusion on the Exchange, NVest,

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SENSIBLE GROWTH will not be chasing growth at all costs – our business is about people and trust and it's important that we continue getting both elements right.”

Brendan Connellan, one of the executive directors of the group, also added that although we were very pleased to see the share price more than double on the first day of trading, it did not come as a surprise. “We knew that the share listed at a significant discount to its fair value and that our results, released shortly before listing, would be very positive. But we were determined to list at a discount in order to ensure that our stakeholders, specifically our clients and employees who have been critical to our success, would benefit from the increase in price to a fairer value”, he said.

NVest has its head office in East London (NFB House in Beach Road), as well as offices in Port Elizabeth, Cape Town, Johannesburg and will soon also be represented in Durban. The Company is a diversified financial services group that has well in excess of R14 billion assets under administration and management.

Of the approximately 205 million shares, 12.8%

(26,250,000) were offered to the public on a limited basis and the share was 4.25 times over-subscribed.

Of the amount offered to the public, approximately 25% were taken up by employees of the Group, giving about 70% of the employees in the Group a stake in the business.

NVest went to the JSE with the main aim of using the JSE platform as a springboard to achieve growth beyond only the Eastern Cape, reasoning that a listing would enhance its profile and visibility, making it more flexible with its long-term acquisition strategy. The increased liquidity of the shares will also enable the directors to implement staff incentive schemes and attract and retain key individuals.

“We have an opportunity to take a business which started 30-years ago in the Eastern Cape to the South African market and hopefully grow it into a brand recognised throughout the country,” said Anthony.

For further information, kindly contact Brendan Connellan on bconnellan@nvestholdings.co.za

Anthony Godwin's pure delight on receiving the NVFH listing trophy.

Anthony Godwin being presented with the JSE Alt-X listing trophy by Nicky Newton-King, the JSE's CEO (left) and Donna Oosthuyse, Director: Capital Markets (right).

Anthony Godwin beating the JSE drum

The NVFH directors with the tribal dancers beating the drum and making noise at the opening of the market on the 29th May 2015.

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SENSIBLE LIFE

IS LIFE COVER REALLY FOR LIFE? Contributed by BrightRock.

S

outh Africa has a huge problem of underinsurance – in fact the level of underinsurance is estimated to be around R24 trillion. This is in part due to the fact that many people cannot afford life cover, and is most pronounced at younger ages where client's financial needs are higher (for example when the client has the highest number of pay cheques to protect and replace). Yet, policyholders' policies are designed, and priced, to provide the highest level of cover when their insurance need is lowest.

For many years, the life industry has been providing blocks of cover with the promise of future growth – to a maximum term, usually retirement age for disability cover – with a premium that increases too.

This mismatch between cover and need is confirmed by the True South insurance gap study, commissioned by the Association for Savings and Investments of South Africa (ASISA), which finds that earners in the older age categories tend to be overinsured.

This is highly inefficient and results in many people giving up their cover as they get older.

What this means for the consumer is that, in effect, when looking at industry claims data, most policies sold today are priced to increase for the maximum possible term, but behave like decreasing term insurance products – yet clients are paying from day one for increasing cover priced for the maximum policy term – leading to premium waste.

BrightRock's needs-matched life insurance challenges some of the most entrenched beliefs about how risk cover should be structured to meet clients' needs. Needs-matched cover is priced accurately for the correct term based on the client's financial exposure. BrightRock clients get almost double the cover up-front and it is the only life insurance provider that sets and prices cover to map the trajectory of the client's actual financial need at every point of the policy's duration.

The efficiency applies not only to disability cover, but to life cover too, so on average, BrightRock clients are able to buy about 40% more cover on their whole policy using needs-matched technology than they would with a competitor for the same premium.

The good news is that you can still secure your

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financial future. These handy tips may help you start to ensure that your cover matches your needs:

< Check for underinsurance at younger ages – your greatest financial asset is your ability to earn an income, so it is important to protect your future pay cheques until retirement;

< Check for over-insurance at older ages – if

your cover is set to grow steeply over time, you may be overpaying today for cover that you're likely to reduce anyway as you get closer to retirement age and your financial exposure decreases.

< Ask your financial adviser about your premium

funding pattern – often, if affordability is an issue, your financial adviser may choose an age-rated funding pattern for you. This means your cover may start off cheaper at the outset, but may increase steeply as you age, with your cover increasing too. This may prove unsustainable in the long term, forcing you to reduce your cover down in future as premiums get higher. It's possible to increase your initial cover at a sustainable premium today, by setting your cover and premium increases to align to expected changes in your financial exposure over time.

< Secure your future insurability today – if you

adjust your cover down in future, you're not only sacrificing the value of the premiums you've already paid for the cover to retirement age – but also the loss of future insurability. If your needs change after reducing your cover, you may need to undergo underwriting (medical tests to check your risk). If your health has deteriorated since you were first underwritten, you pay much more for cover or find you can't get the extra cover you need at all. BrightRock offers various options that allow you to secure cover in future should your needs change on standard policies without many of the restrictions you may have with other insurers in the market.

SENSIBLE RETIREMENT

TFSA'S VS RA'S Do Tax-Free Savings Accounts effectively replace Retirement Annuities? By Bryce Wild, Private Wealth Manager - NFB East London.

T

he much anticipated introduction of the TaxFree Savings Account (TFSA) by National Treasury materialized on 1 March 2015. The product is now available to all South African taxpayers who are natural persons and this new type of investment can also be held in a minor's name, enabling families to take full advantage of this savings innovation. This investment type forms part of government's plan to reform the weak nonretirement savings culture that exists in South Africa.

Some of the main features of this investment are as follows: Annual contributions are limited to R30 000 per annum or to R2 500 per month. Lifetime contributions are limited to R500 000. Excess contributions will be taxed at 41%.

Unused contributions from the previous year do not roll over and cannot be used to offset an over contribution in subsequent years.

No dividends withholding tax, capital gains tax or income tax is payable on the product, provided that the contribution limitations are not exceeded. No tax is payable on the withdrawal of funds either.

Funds invested in a TFSA can be withdrawn at any time. However, it is important to remember that if you decide to replace these withdrawn funds, it will be considered as a new contribution and will thus count towards your annual and lifetime limits.

< < < <

The compounded effect of not paying tax on this investment will not likely be material in the beginning, but the tax benefits will grow over time, due to the power of compounding returns. The longer you invest for, the more benefit you will derive. It is important that investments in these accounts form part of an holistic financial plan. If you invest for a shorter period, you will not gain the tax benefit and will in the meantime have used up a portion of your lifetime contribution limit.

With a Tax-Free Savings Account having been defined, a question I have come across in the past

few months is: “Do Tax-Free Savings Accounts effectively replace Retirement Annuities?”

The short answer to that question is “no”. Both Retirement Annuities (RA's) and TFSA's earn tax-free investment returns, however, when saving for retirement, RA's remain the preferred option for the following reasons: RA's are funded with pre-tax money, whereas TFSA's are funded with after-tax money.

RA contributions are tax-deductible up to certain limits, while contributions to TFSA's are not.

RA's fall outside of the estate upon death (thus saving estate duty and executors fees), and TFSA's form part of the estate.

RA's are protected against the claims of creditors, while no similar provision exists for TFSA's.

RA's limit access to funds until age 55, while TFSA's allow limitless access, which may hamper the attainment of retirement planning goals.

There is no limit to how much one should contribute towards RA's, however, TFSA's have limits as outlined above.

< < < < < <

In summary, retirement annuities are still the preferred investment vehicle for retirement planning, for the abovementioned reasons.

However, if one is looking for an alternative investment vehicle, where access to the funds will be needed before the age of 55, the first R30 000 in discretionary (non-retirement) savings each year should probably go into the Tax-Free Savings Account and then other discretionary investment options can be considered. Should you require further information on either RA's or TFSA's and how these investment vehicles could benefit you, please contact an NFB financial advisor for assistance on one of the following numbers: East London 043-735 2000 Port Elizabeth 041-582 3990 Cape Town 021-202 0001

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SENSIBLE INITIATIVE

Making your contribution go a little

further

By Shaun Murphy, partner at Klinkradt Murphy.

W

hilst spending your money in the right places and for the right cause is one thing, maximising your benefits therefrom is another thing. A business should never lose sight of what they have done in contributing towards a Corporate Social Initiative - they have changed lives, enhanced education and have assisted far more people than could ever be conceived. Without these donations many CSI's would not survive.

So whilst embarking on your annual calculation of 1% of net profit after tax adjusted for the industry norms as contained in the codes, take a step back and think of the impact that this donation could have on so many less fortunate individuals in our country. In our line of work we see so many corporates that donate because they have to, not because they want to, and accordingly they do not see the additional opportunities that are available. This lack of embracement for the B-BBEE codes, and the amended codes, is exactly why so few of the smaller corporate businesses out there fail to see the possible opportunities that lie within the donation.

Publicity and marketing are one of the key foundations to any business, hence the reason why multinational and listed entities spend massive amounts of funding on an annual basis towards this aspect of their business. Product awareness, product placement and target markets are all key factors that they work towards and ultimately any form of positive publicity that promotes their company is a positive.

When embarking on your support program, stop to think how best you can benefit the

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particular organisation that you have chosen; remember that it is a rand equivalent program so any cost incurred counts towards your spend.

Secondly, look at ways of obtaining media coverage on the handover. Whilst every donation may not warrant Daily Dispatch coverage, the Go! newspaper will undoubtedly print and run small captions of CSI support initiatives with a feel-good story. This in turn enables you to obtain possible publicity on new product launches if that forms the basis of what you have donated. We have assisted numerous clients to set up this type of marketing launch on new products, company awareness and marketing based on donations, and it's just a little bit of free advertising that is created for the business that you would not have otherwise had. By discounting this into the cost of the donation one will rationalise spend significantly and the CSI support becomes less of a task and more of a marketing tool for your business.

The spin-off of the whole program is that competitors who are being out-shone on the public forum will be forced to follow suite, and accordingly, the business communities' contribution towards the CSI programs will be enhanced significantly. Just take the time to think how many lives that small donation enhances and put a smile on your face when signing that cheque.

“Managing success into the future” Our services include: Accounting • Auditing • Taxation Planning Estate Planning • All Statutory Registration • Business Structuring Concessions • Due Diligence • Business Succession Planning

Contact us on 043 726 9555 for all your queries. partners: Gary Klinkradt ca (sa) and Shaun murphy CA (SA)

SENSIBLE GROWTH

ALL ABOUT THE ALTX Shedding some light on the basic questions. By Xolisa Funani, Financial Paraplanner - NFB Port Elizabeth.

What is the AltX? The AltX is the JSE's board designed for good, small and medium sized high-growth companies. It provides the smaller companies with access to capital while providing investors with exposure to fast-growing smaller companies within a regulated investment environment.

The AltX was established in October 2003 with the purpose of encouraging entrepreneurship especially amongst South Africans. One of the first companies to list on the AltX was “Beige Holdings Limited” in December of 2003. Since its inception, more than a 100 companies have listed on the AltX, and as of 2009 about 25 of those companies have migrated to the JSE Main Board, indicative of the AltX's ability to be a springboard for growth.

The AltX is for investors who understand the nature of markets and are willing to take the up and downside risk associated with investing in growing companies. The AltX offers shares of companies that comply with the rules and regulations of the JSE and uphold the high standards of corporate governance. The AltX places great emphasis on continuous disclosure of initial and ongoing information of the listed companies which ensure that investors are always in the loop.

Why companies list on the AltX The listing of a privately owned company is no small feat; it represents the hard work that has gone into building a reputable company brand and strong business acumen. Listing of a company appeals to many companies across all sectors, such as fast growing small to medium businesses including start-ups, family owned businesses, BEE companies and even privately owned companies.

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Photograph by Andres de Wet

A

s most of the readers will be aware, NVest Financial Holdings Limited (“NVest”) listed on the Johannesburg Stock Exchange AltX on the 29th of May 2015, following a successful private placement. This made NVest the 7th company to list on the JSE in 2015 and the 3rd company to list on the AltX Board this year.

In this article, I will be shedding some light on some of the questions you may have relating to the AltX.

Some of the reasons why these companies decide to go public are listed below, but not limited to:

< Raising of funds outside of the banking system < Issue new shares < Diversify the investor base < To have the company shares traded on a regulated market

What it takes to list on the AltX According to the JSE, once a company has decided that a listing is the most appropriate way to achieve their goals and objectives, the company that intends to list needs to obtain the services of a registered AltX designated advisor (DA). There are a number of responsibilities the DA is appointed for. They have to act competently, professionally and objectively in advising the applicant company on all its responsibilities during the application process and the requirements for maintaining their status once listed. Once the company applies, the company then needs to present to an advisory board of industry experts that will judge the business plan, ask questions and determine whether the company is suitable and ready for a public listing.

I trust that this article has been helpful and informative. The only question left is....have you bought your NVest shares?

Should you require further information about the AltX or how to go about purchasing your NVest shares, please contact us on one of the following numbers: Port Elizabeth 041-582 3990 East London 043-735 2000 Cape Town 021-202 0001

SENSIBLE DECISION What to consider when doing a Section 14 transfer of your RA interest' with regard to an RA is “the total amount of contributions to the fund by a member of a retirement annuity fund up to the date of divorce, together with a total amount of annual simple interest on those contributions up to the date of divorce”.

What this means is that, on platform 1, the RA is made up of contributions and growth on the investment. Only the contributions would be taken into account in the case of a divorce. When the RA is transferred to platform 2, the entire sum transferred becomes a contribution for purposes of the Divorce Act and calculating 'pension interest', meaning that a higher amount may potentially become payable to a former non-member spouse.

It is also important to note that it is not just the

Continued from page 8

contributions made during the existence of the marriage, but ALL contributions made up to the date of divorce (even if there were 15 years of contributions prior to a marriage that has only lasted for 2 years) as per the Divorce Act. This consequence cannot be excluded by an Ante Nuptial Contract.

To transfer or not to transfer… the ultimate decision is yours.

Should you require further information on RA's and section 14 transfers, please contact an NFB financial advisor for assistance on one of the following numbers: East London 043-735 2000 Port Elizabeth 041-582 3990 Cape Town 021-202 0001

SENSIBLE QUESTIONS Business travel insurance - frequently asked questions emergency assistance company will be linked to any good travel insurance policy. This company will provide a payment guarantee to the hospital or clinic and settle the medical account directly with the service provider.

How are other claims paid out?

All claims for other benefits (or medical bills you might settle yourself) are payable to you, the insured, once the claim is submitted.

What does Cancellation Cover insure?

Cancellation Cover will reimburse any nonrefundable travel or accommodation costs in the event that travellers are unable to travel due to an unexpected illness or accident.

Your cover might include cover for other incidents as well - these will be detailed in the policy document. Always ensure that you understand this document fully.

I have free cover on my credit card – is this sufficient?

Most banks provide some complimentary travel cover if you have purchased your ticket using your credit card. This is usually limited to some medical cover, accidental death and disability cover. Make sure that you check exactly what is covered before travelling.

Should you find that this cover is not sufficient for your travel purposes, you can purchase one of the Top Up options available at TIC. This will ensure

Continued from page 11

that you have adequate cover for any event.

Estimated costs: Heart attack in USA: USD12,000 - USD15,000 per day Broken leg in Europe: USD20,000 Flu ln the UK: USD600 Food poisoning in Asia: USD300 - USD1000 Interesting fact: The highest recorded medical claim paid globally is US$1,5 million.

CONCLUSION: This article was sourced from Cover Magazine August 2014 edition. NFB Insurance Brokers represents a number of underwriters specializing in travel insurance who offer a wide range of risk cover to the business and leisure traveller. Our range of travel insurance solutions provides you with peace of mind knowing that you're covered against any unforeseen incidents, anywhere in the world, wherever your travels may take you. Should you require further information please do not hesitate to contact our office on (043) 735 2460, where we will be only too pleased to assist and obtain a quotation on your behalf.

insurance brokers (border)(pty)ltd.

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SENSIBLE QUESTIONS

FREQUENTLY ASKED QUESTIONS REGARDING

WILLS, DECEASED ESTATES AND TRUSTS

By Debi Jacobs, Senior Estate Administrator - Independent Executor & Trust.

What happens if I die without having made a Will?

Your estate will be distributed in terms of the Law of Intestate Succession, and you may end up benefiting beneficiaries whom you may not have wished to benefit, and may exclude persons whom you would have preferred to benefit. If there are minors involved, their inheritance will be paid to the Master of the High Court Guardian's Fund. Complex problems would also arise which could be avoided if your Will was in place.

Can I draw up my own Will without seeking professional advice?

The law does not prevent you from drawing up your own Will, but there are many legal formalities which must be complied with for the Will to be valid. If the Master renders the Will invalid, only a costly High Court application can be sought to rectify this error.

Can the proceeds of insurance policies be bequeathed in terms of my Will?

The proceeds of an investment can only be bequeathed in terms of your Will if such proceeds are payable to your estate on your death. If you have nominated a beneficiary to receive the proceeds then the company who issued the policy will pay the proceeds to the beneficiary nominated. Remember, if a policy pays directly to a beneficiary and bypasses the estate, it is still considered a deemed asset for Estate Duty purposes.

What happens if I forget to change my Will after divorce?

According to the Wills Act, if you die within 3 months of the divorce, a bequest to your divorced spouse will be deemed revoked. This allows a divorced person a period of three months to amend their Will after the trauma of divorce. If one fails to amend ones Will within three months after divorce, your divorced spouse will benefit as

indicated in the Will.

What is a Codicil?

This is an addition made to supplement or amend an existing Will. A codicil must comply with the same requirements as a Will in order to be valid. A codicil need not be signed by the same witnesses who signed the original Will.

What is the difference between an heir and a legatee?

A legacy is a specified amount of money or property that is left to someone in a Will, and this person is called a legatee. The residue of the estate, the portion left after debts and legacies have been paid out is inherited by heirs, also known as beneficiaries.

How old do I have to be to have a Will?

Any person 16 years and older can have a Will drawn up provided that person is mentally equipped to understand the impact of their actions. A witness to a Will must be at least 14 years old.

Do I need to pay tax on money I inherited?

An inheritance acquired by an heir is what is described as a 'capital receipt' and is therefore not included in the heirs' gross income. In South Africa, there is therefore no tax payable by the heirs who inherit.

Can I make valid a Will if I cannot sign?

Yes, you can sign by means of a mark, e.g. a thumbprint or making of a cross, or someone may sign on your behalf, but this must be done in the presence of two competent witnesses and a commissioner of oaths, all of which need to be present at the same time, and the Commissioner must add his Certificate to the Will.

At Independent Executor & Trust we are committed to personalized service and individual attention. With combined experience of 65 years, we specialize in the Drafting of Wills, Administration of Estates & Testamentary Trusts.

49 Beach Road, Nahoon, East London, 5241 | PO Box 8081, Nahoon, 5210 Telephone: (043) 735 4633 Fax: 086 693 3356 / (043) 735 3942 | e-mail: info@iet.co.za

Port Elizabeth clients can call 041-582 3990 and you will be re-directed accordingly

SENSIBLE QUESTIONS

Travis McClure

â&#x20AC;&#x153;Sensible Finance - Questions and Answersâ&#x20AC;? is an advice column that will allow our readers the opportunity to write to a professional and experienced financial advisor for advice regarding investments, personal finance, life and/or risk cover. Travis McClure will be answering any questions that you may have.

Q:

Government recently introduced the TAX FREE SAVINGS ACCOUNT to encourage people to invest.

I am keen to invest, but also know that I have other options like Retirement Annuities, endowments and managed unit trust portfolios. It is great having options, but it can get confusing. How do these investment options compare and how does one establish which option is best?

A: The positive from the above is that the investor is faced with choice. The negative is that it is often confusing and difficult to make an informed decision.

There are a number of factors that one needs to consider when investing in these various vehicles: tax, liquidity, investment choice, allocation restrictions, costs and most importantly the clients' needs and risk profile.

Too often we invest because we feel that we may save some tax or because the investment vehicle is more flexible, or because we perceive it to be cheaper when in actual fact the investor needs to focus on his own needs and financial plan and choose the product that is best suited for that.

That being said, the main differences between these products is outlined below.

The newly introduced tax free savings account is a great initiative from Government. It is invested into with after tax earnings, but all growth going forward in the portfolio is free of tax. Investors need to be aware that they can only contribute R30 000 p.a. (R2 500pm) per tax year and R500 000 in their lifetime. Any excess contributions will be slapped with a 40% penalty. There is liquidity, but note that withdrawals do not give you a credit to put back into the investment.

Example: if you contribute R30 000 then draw out R20 000 and add back R10 000, you will pay a 40% penalty tax on the R10 000 as you will have been seen to breach the maximum allowed contribution for the year of R30 000.

There is wide fund selection, but this is restricted to funds that do not pay any performance fees. For most people the initial benefit will not be felt as you are still able to utilise your interest and CGT annual exemptions. Over the longer term the benefits of this vehicle will start to materialise and the benefit and compounding effect of no income tax, dividend tax and CGT will certainly enhance the returns of the portfolio.

The Retirement Annuity allows one to deduct the contributions paid in against your income. This tax advantage means that you pay less tax on your taxable income and therefore SARS is effectively reducing the cost of your premium to the RA. There is currently a restriction on the amount you can deduct of 15% of non-retirement funding income.

This is an immediate advantage and once the funds are invested there is not tax applied to the portfolio. The fund choice is wide, but is restricted

by Regulation 28 which prevents funds from having too much exposure to equities and offshore investments. Most balanced funds are, however, Reg 28 compliant. There is no access to the capital until age 55. Once 55 is attained one can have access to 1/3rd as a cash lumpsum of which the first R500 000 is tax free; the remaining 2/3rds then has to be invested into a pension portfolio in order to provide an income. The income from this pension will be treated as a taxable income. The pension portfolio, however, will continue to grow free of tax. The portfolio is also protected from creditors and is not included in ones Estate.

Endowments offer a tax advantage to the higher net worth investor where tax is applied at 30% on rentals and interest and CGT at 9.9% as opposed to 13.33%. Fund choice is wide and not restricted. Access to capital is, however, limited to one surrender and one part withdrawal within the first 5 years subject to a maximum of capital plus 5% compounded. After 5 years there is full liquidity and no restrictions on the amounts.

The Managed Unit Trust portfolio gives you the greatest flexibility, fund choice and liquidity. There are, however, no tax incentives or advantages.

All 4 options have their place and should be a part of most peoples' portfolios. One needs to speak to their Financial Advisor and establish which one or which combination is best suited. At the end of the day investing in any one of them over the longer term will go a long way to enhancing your retirement capital, but being able to reduce the tax effects will ensure a greater compounded return.

Please address all Questions to: Travis McClure NFB Sensible Finance Q&A, Box 8132, Nahoon, 5210 or email: info@nfbel.co.za

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SENSIBLE DECISION

CORPORATE EVENTS OF INTEREST A quick look at South32 and Sirius Real Estate. By Mandy Botha, Portfolio Manager - NVest Securities

I

n this quarter's article I have decided to step away from our core holdings to discuss some recent corporate events. In particular the demerger of miner South32 from BHP Billiton and the EUR50 million raised by offshore listed property group, Sirius Real Estate.

On the 17th March BHP Billiton announced their planned demerger of non-core assets into a spinoff company by the name of South32. The rationale behind the demerger was for BHP Billiton to become leaner and more efficient in the face of weak commodity prices by focusing on iron ore, coking coal, copper and petroleum. A demerger was chosen as the vehicle for disposing of the unwanted assets as the board was of the opinion that it would not only cost less, but it would maximise shareholder value and allow existing BHP Billiton shareholders the option to choose their level of investment exposure. Following a vote with 98% of BHP Billiton shareholders in favour, South32 demerged, listed and began trading as a separate entity on the JSE, LSE and ASX with existing Billiton shareholders receiving one new South32 for every one BHP Billiton held.

With operations in Australia, Southern Africa and Colombia, South32 was named after the degree of latitude linking its two regional centres.

From a commodity perspective, it has exposure to nickel, coal, silver, lead, zinc, manganese, alumina and aluminium. Although the unpredictable nature of commodity prices are eased by a well diversified business, many analysts are concerned about the risk of operating so many South African assets in light of the country's electricity constraints, in particular, the affect on South32's aluminium smelters. Despite the concern, South32 trades at a 10% discount to its net asset value, has little debt, is comprised of quality assets and has a generous dividend policy with a 40% payout ratio. At a

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current price of R20.01, it has seen its price settle to more attractive levels and may provide an opportunity for a resource seeking investor looking for a large degree of South African exposure. For core equity portfolios, it is a small holding out of BHP Billiton and should be sold or bulked up.

Sirius Real Estate, the owner and operator of mixed-use office parks across Germany recently approached the market in order to raise EUR50 million for the purchase of a EUR58m mixed-use property portfolio and the refinancing of an existing EUR58m bank facility. On Monday 8th June 2015 the private placement was successfully closed with the full EUR50million being placed at the lower end of price guidance. The property portfolio to be acquired is comprised of five business parks which collectively amount to 103,610m2 and produce a net initial yield of 8.1% per annum. The acquisitions will be financed through a portion of the funds raised and a EUR18million bank facility at an expected fixed interest rate of 2.5%. They are anticipated to be accretive to the company's annual dividend per share by approximately 16%.

The aggressive acquisitive nature of Sirius' board is not only clear, but in line with their long-term plan to generate attractive and sustainable returns from the growing portfolio. While not suited for all, Sirius does provide an interesting case for those looking for an offshore REIT with active management and a reasonable dividend yield. Sirius currently trades at R6.40, near NAV and offers an investor a dividend yield of over 3%.

Should you require any further information, please contact one of our portfolio managers on 043 â&#x20AC;&#x201C; 735 1270.

Please note: market data used in this article was correct as at the 12th June 2015.

The Eastern Cape's first home-grown

STOCK BROKERAGE NVest Securities (Pty) Ltd NFB House, 42 Beach Road, Nahoon East London 5241 PO Box 8041, Nahoon 5210 Tel: (043) 735-1270, Fax: (043) 735-1337 Email: info@nvestel.co.za

www.nvestsecurities.co.za Port Elizabeth clients can call 041-582 3990 and you will be re-directed accordingly

NVest Securities is an Authorised Financial Services Provider

NFB have a STRONG, REPUTABLE TEAM OF ADVISORS with a WEALTH OF EXPERIENCE between them: Anthony Godwin RFP™ І MIFM – Managing Director, 27 years experience; Gavin Ramsay B.Com MIFM - Executive Director and Private Wealth Manager, 22 years experience;

years experience; Alex Grunewald CFP® І PGDFP – Managing Director and Private Wealth Manager, 9 years experience;

Andrew Kent MIFM - Executive Director and Share Portfolio Manager, 22 years experience;

Mikayla Collins CFP® І B.Com (Hons), PGDFP, CFA Level 1 - Private Wealth Manager, 4 years experience;

Walter Lowrie - Private Wealth Manager, 30 years experience;

Glen Wattrus CFP® І B.Juris, LLB, PGDFP – Private Wealth Manager, 18 years experience;

Robert Masters AFP™ | MIFM - Private Wealth Manager, 30 years experience;

Julie McDonald CFP® І B.Com, PGDFP – Financial Advisor (Risk Assurance Specialist), 4 years experience;

Bryan Lones AFP™ І PGDFP, MIFM - Private Wealth Manager, 24 years experience; ®

Travis McClure CFP І B.Com, PGDFP, MIFM – Executive Director and Private Wealth Manager, 17 years experience; Marc Schroeder CFP® І B.Com (Hons), PGDFP, MIFM - Private Wealth Manager, 11 years experience;

Bryce Wild B.Com (Hons) – Private Wealth Manager, 2 years experience Leona Trollip RFP™ І Divisional Manager – Employee Benefits, 39 years experience; Leonie Schoeman RFP™ І Divisional Manager – Healthcare Advisory Services, 18 years experience;

Phillip Bartlett CFP® І BA LLB, PGDFP, MIFM Executive Director and Private Wealth Manager, 13

NFB has a separate specialist Short Term Insurance Division, as well as now offering specialist group companies in the fields of stock broking, wills and the administration of deceased estates.

For 30 years, NFB have successfully guided our clients.

Now let us navigate your financial future too. private wealth management

Contact one of NFBâ&#x20AC;&#x2122;s financial advisors: East London s tel no: (043) 735-2000 or e-mail: info@nfbel.co.za Port Elizabeth s tel no: (041) 582-3990 or e-mail: info@nfbpe.co.za Cape Town s tel no: (021) 202-0001 or e-mail: info@nfbct.co.za

web: www.nfbpwm.co.za NFB is an authorised Financial Services Provider