VIEW OF THE MONTH NEWSLETTER
JANUARY 2021Dear Investor,
Our “view of the month” is an open sluice gate at the Vaal Dam which is now over 80% full. Water levels across the country continue to look encouraging, as the offshoots of tropical storm Eloise continue to bring rain and cooler weather to South Africa. Readers are reminded that South Africa is a semi-arid country and however encouraging the dam levels are, now is not the time to stop saving water as winter is fast approaching.
Just like you should not be wasting water, don’t waste the opportunity to take advantage of tax breaks before tax year end as per our first section of this month’s newsletter.
In this month’s newsletter we cover the following topics:
- How to save on your taxes
- Provident fund rule changes
- Financial emigration laws changed
- Our asset allocation preferences for 2021
- Investec Rand forecasts
- Oil tanks feedback
- ETF portfolios feedback
- Fuel prices
- Market stats summary
- Financial indicators
- Changes to our FSP license
February is the last month of the financial year and therefore your last opportunity to take advantage of some of the following tax efficient products/services on offer:
- Retirement Annuities (RA) – Contributions up to 27.5% of gross remuneration are tax deductible (limited to R350k pa)
- Group RA and Umbrella funds – Same as RAs above but for small-to-medium enterprises
- Tax Free Saving Accounts – No tax on investment returns such as interest, dividends or capital gains (contributions limited to R36k pa)
- Endowments – Reduced tax rate of 30% for high income earners
- Share portfolio tax efficiency – Tax loss harvesting and utilising your annual tax free capital gains allowance of R40k
- Section 12Js – If the taxpayer is an individual with a marginal tax rate of 45%, the taxpayer can invest R1m and will effectively be paying R550k (R1m – R450k) for a R1m investment since R450k of your investment will be refunded by SARS
Click here to read more about the above tax efficient products/services or contact us should you require help in reducing your biggest expense.
2. Provident fund rule changes
At present, members of provident funds and provident preservation funds can take the full value of their retirement benefits in cash at retirement if they chose to do so. Members of pension funds, pension preservation funds and retirement annuities (RAs) on the other hand, can only take ⅓rd of their retirement benefits in cash and must use at least ⅔rds of their retirement benefits to purchase an annuity to provide a regular income in retirement. If the total value of the retirement benefit is less than R247,500, members of pension funds, pension preservation funds and retirement annuities can take the full value of their retirement benefit as a cash lump sum.
Any money contributed to a provident fund from 1 March 2021 (t-Day) onwards will be subject to the same annuitisation rules applied to a pension fund or retirement annuity benefit at retirement: only ⅓rd of the benefit may be taken in cash, and at least ⅔rds must be used to purchase an annuity. If the post T-Day contributions, plus growth, are valued at R247 500 or less at retirement, the full amount can be cashed out.
Existing members of provident funds and provident preservation funds have accumulated benefits with the expectation of being able to receive those benefits as a cash lump sum at retirement. In recognition of that expectation, provident fund and provident preservation fund members will have the right to take the benefits they have accumulated up to t-Day, plus growth on those benefits, as a cash lump sum when they retire. These benefits will be referred to as “VESTED BENEFITS”.
| VESTED BENEFIT | NON-VESTED BENEFIT |
| The benefits that accumulate up to 28 February 2021 PLUS investment growth on those benefits after that date. | The contributions that are made from 1 March 2021 PLUS investment growth on those contributions after that date. |
All contributions originating from a pension fund or retirement annuity fund are considered fully non-vested.
Will existing provident preservation fund members be affected? T-Day changes only affect contributions made after T-Day, and as provident preservation fund members cannot make contributions, existing members of provident preservation funds will not be impacted by these changes. Existing provident preservation investments will be fully vested.
What about members who are 55 years or older on t-day? Provident fund members aged 55 or older at T-Day are exempt from the annuitisation requirements. Both the provident fund benefit accumulated before T-Day and the contributions made from T-Day onwards, plus growth, will be considered vested benefits. This remains the case if the member transfers this benefit to another retirement fund: the full benefit plus growth after the transfer takes place remains vested.
The section was copied from a Stanlib communication. Click here to see examples and this Provident Fund changes explained by other platforms (Sanlam and Allan Gray).
3. Financial emigration laws changed
Currently South Africans can access their RAs and Preservation Funds upon ceasing residency for both tax (SARS) and exchange control (SARB) by utilising the financial emigration process. This means they can withdraw their full retirement savings (minus SARS lump sum withdrawal taxes) immediately post successful financial emigration and apply the money according to their personal circumstances, i.e. like setting themselves up overseas.
With effect from 1 March 2021, RA and Preservation fund members will be able to take a pre-retirement withdrawal in relation to an emigration if:
- They are or were South African residents who emigrated from South Africa and that emigration was recognised by the South African Reserve Bank (‘SARB’) for purposes of exchange control in respect of applications received on or before 28 February 2021 and approved by the SARB or a South African bank on or before 28 February 2022; or
- They are not SA residents for an uninterrupted period of three years or longer on or after 1 March 2021. Practically, this means that should an application to emigrate as per the current process not be received by the SARB before 28 February 2021, then the new “3 year rule” will apply.
Click here to see how Vista Wealth Management can assist you with your financial emigration journey.
4. Our asset allocation preferences for 2021
- Emerging markets looks relatively cheap and trades at a big discount compared to the S&P500:
- South African stocks are inexpensive compared to our emerging market peers:
- Outflow from UK Equities has been drastic over the last couple of years as a result of Brexit and the Corona virus. With the uncertainties of Brexit out of the way and assuming the successful rollout of a vaccine for the Corona virus, we could see a big pick up in the FTSE100:
- American stocks could continue to provide value if President Biden’s $1.9 trillion Covid-19 relief package is approved by their Congress
- Demand for Resources and Miners should continue if the rollout of a vaccine for the Corona virus is successful. In addition, the Investec mining clock indicates commodities still has some legs
- General pension and retirement product asset allocation: 30% Local bonds, 20% Local income funds, 30% Offshore equity, and 20% Local equity
- General discretionary investment asset allocation: 50% Offshore equity, 10% Local equity, 20% Local bonds, and 20% Local income funds
Click here to view Investec’s JSE model portfolio and Mining clock as published during January 2021
The rand continues to pull towards R15.00/USD supported by periods of risk-on, while SA is seeing its COVID-19 cases below 5 000 a day as the rapid downwards trend continues, with hopes for easing restrictions. The rand averaged R15.12/USD during the month of January 2021, drawing closer to R15.00/USD, although it could see marked weakness later this month after the release of South Africa’s 2021 Budget on significant further deterioration in the country’s public finances. Below Investec’s exchange rate forecasts as published on 1 February’21:
Oil prices have rallied off the back of possible vaccines for Covid-19 and therefore an increased demand for oil. As published in our previous newsletters, we’ve been trading oil in both our local and foreign share portfolios. See below returns over the last 4 months of the two Exchange Traded Products (ETPs) used to get exposure to oil:
| # | Portfolio | Instrument | Currency | Performance for Oct’20 | Performance for Nov’20 | Performance for Dec’20 | Performance for Jan’21 |
| 1 | JSE portfolio | SBAOIL | ZAR | -11.98% | 15.65% | 1.35% | 14.75% |
| 2 | Offshore portfolio | USO | USD | -10.70% | 22.65% | 6.59% | 13.29% |
An Exchange Traded Fund (ETF) is a security, which represents a basket of shares, that you can buy or sell on a stock exchange. These investment vehicles allow investors a convenient way to purchase a broad basket of securities in a single transaction. Essentially, ETFs offer the convenience of a stock along with the diversification of a unit trust. It is arguably the cheapest and most diversified way to get access to the stock market. ETF portfolios have in recent years proven to not only be cost-effective investments for our clients but has also been outperforming active fund managers.
Below our ETF house view portfolio performances as at 31 January 2021 on a cumulative basis:
| # | ETF Portfolio | Currency | 1 Year performance | 2 Year performance | 5 Year performance |
| 1 | Local ETF Portfolio | ZAR | 8.04% | 27.55% | Immeasurable |
| 2 | Offshore ETF Portfolio | USD | 18.16% | 36.74% | 89.62% |
*Past performance is no guarantee of future performance. Above returns exclude dividends, except where the ETF is a total return ETF
According to the Automobile Association, the price of petrol is expected to increase by up to 82 cents a litre, diesel by 59 cents, and illuminating paraffin by 60 cents on Wednesday, 3 February’21.
10. Financial Indicators as at 29 January 2021
Global indices (NB! Returns are measured in Rand percentage points. For example, the S&P 500 returned 2.02% for the month as measured in Rands)
JSE Sectors:
Currencies: (NB! Positive indicates ZAR has weakened for the period, vice versa)
Interest Rates:
We would like to inform you of an exciting change with respect to Vista Wealth Management’s operations as your financial adviser for your investment accounts. To date, Vista Wealth Management has been providing financial advice, as a juristic representative under the FSP license of Intrepid Capital (FSP48507). This is a legislative requirement that requires advisors to be part of an institution offering financial advice.
It is with pride that we inform you that we have progressed to a stage where we have been approved by the Financial Services Conduct Authority (FSCA) to provide the same services, but under our own FSP license with the following details:
- FSP Name: Vista Wealth Management (Pty) Ltd
- FSP License Number: 51102MD
- Key individual: Magnus de Wet
- E-mail address: info@vistawealth.co.za
- Telephone Number: 087 701 0465
It is important to note that nothing on your investment will change and this is just a regulatory change. Vista Wealth Management will therefore remain your financial adviser and you are still our valued client. Also, the financial advice fees, which you have agreed to on your investment account, will remain unchanged. In order to effect this change, we will be in contact with our clients requesting a them to sign a new Advisor Appointment form.