Dear Investor,

Our View of the Month picture is a photo of Dr. Patrick Soon-Shiong. He is a South African-American transplant surgeon, billionaire businessman, bioscientist, and media proprietor living in the United States. He recently made the news again after designing a unique coronavirus vaccine booster that generates both antibodies and T-Cells. In layman’s terms, his vaccine booster attempts to both prevent the virus from entering as well as killing the virus if it has already entered the body.

Of all the countries where he could launch his booster, he chose his native country South Africa. Not only giving a solution to prevent future coronavirus waves in SA but also wanting to produce locally for SA and the rest of the continent. More about this remarkable man in this Bloomberg article and this eNCA interview.

 

In this month’s newsletter we cover the following topics:

1. Offshore investing tips
2. Capital protected investment opportunities
3. What’s your biggest asset?
4. Rand forecasts
5. Fuel prices
6. Chart of the month
7. Interesting stats for the month
8. Market stats summary
9. Financial Indicators as at 31 August 2021
10. Disclaimer

 

1. Offshore investing tips

With the current Rand strength, offshore investing has been in the spotlight again. We reiterate our consistent message that offshore investing should not be seen as a tool to time the Rand/Dollar exchange rate, but rather a tool to be used to diversify your investment portfolio. It is risky to have all your assets in a small emerging market at the bottom of Africa.

Investors are reminded that the South African Reserve Bank (SARB) still applies a policy called exchange controls when it comes to offshore investing. This policy limits the amount of Rands that South African individuals and companies can convert and take out of the country for investment purposes. As a reminder the policy states that if you are a SA resident over the age of 18 years, holding a South African ID and have a SARS income tax number, you can utilise your annual individual offshore allowances of up to R11 million (R10m foreign capital allowance and a R1m single discretionary allowance) per calendar year (1 January to 31 December) by investing in a foreign-denominated currency investment. For the R1m single discretionary allowance (SDA) per calendar year, no SARS foreign tax clearance or other permissions are required. For investments utilising the R10m foreign capital allowance, the investor needs to apply for a foreign tax clearance from SARS. Lastly and very importantly, companies, trusts and partnerships are not allowed to invest directly offshore.

With an asset swap the above exchange control rules does however not apply. This is because you are utilising another financial institution’s (bank or asset manager) allowable capacity to expatriate Rands. It is important to note that the financial institution is not borrowing the investor the money to invest offshore, the investor must still transfer the investment amount to the financial institution to facilitate the asset swap. Your Rands is then physically invested abroad, in your chosen currency, but it must be repatriated when you want the funds.

The asset swap can also facilitate back-to-back transactions where for example directors of a company can be remunerated from the asset swap facility in a foreign denominated currency without the directors having to repatriate the funds to SA first. It is important to note this back-to-back transaction would still need to comply with the SARB exchange control rules applicable to the director’s allowance.

The financial institution facilitating the asset swap is however going to charge the investor for this asset swap service. Surprisingly it is not very expensive and can be as little as 0.3% (30 basis points) per annum on a R1m investment. To put this into absolute terms and at current levels, the Rand only needs to weaken from R14.50 to R14.55 to the US dollar to cover your annual asset swap costs of 0.3%.

In conclusion, an asset swap facility allows SA individuals, companies, trusts and partnerships to invest offshore without the limitations of exchange controls. Below a summary of positives and negatives associated with an asset swap.

Positives of an asset swap:

• Lock in the exchange rate – Quick to market as you do not need to wait for SARS tax clearance
• By utilising an asset swap, an SA individual, company, trust, or partnership can invest offshore – An offshore investment account can allow for investing in foreign denominated unit trusts, shares, ETFs and capital protected investment opportunities as listed in the next section of this newsletter
• Back-to-back transactions are allowed without having to repatriate the funds to SA
• There are no estate planning implications associated with asset swap as there is no foreign legislation considerations

Negatives of an asset swap

• Minimum investment amount of R1m is required
• There is an annual asset swap fee raised by the financial institution facilitating the asset swap. These fees are usually on a sliding scale with larger asset swap amounts attracting lower fees and vice versa. As indicated above, the fees are however less than what you would expect

 

2. Capital protected investment opportunities

Capital protected investments are investments that offer full to partial capital guarantee (expressed as a percentage) on the initial invested amount. The percentage capital protected usually depends on the underlying investment’s performance.

The readers who are familiar with our investment strategy know that we prefer to include capital protected investments in our portfolios. It creates a margin of safety in the portfolio which can protect the investor if things really start going south.

Past performance is no indication of future performance:

• During August’21, a portion (25%) of the ABSA Twin Fixed Return and Growth Protector (Issue 15) capital protected investment matured. It paid out 11.15% on the initial 25% of the investment.
• In September’21, the Investec Euro Stoxx 50 Digital (Issued September 2018) will mature. This capital protected investment will be paying out 63.5% after a 3-year investment term. That is an annual return of approximately 21%.

With interest rates currently at historical lows and equity market uncertainty, capital protected investments might be a solution for savers or conservative investors with a low-risk appetite.

Below five capital protected investment opportunities currently available:

#	Issuer	Investment name *	Currency	Underlying portfolio/index	Capital protection	Hosted within	Term and potential return	Minimum	Participation cut-off date
1	ABSA	Twin Fixed Return and Growth Protector – Issue 28	ZAR	Combination of Fixed returns (Y1 & Y3) and Portfolio of global companies	100%	JSE share portfolio	1Y fixed return @ 15.2% on 25% of capital	R500k	8 September’21 (Monthly issued)
							3Y fixed return @ 30.4% on 25% of capital
							5Y geared return @ 150% on remaining 50% of capital, if positive
2	Glacier SA	Sustainable World Enhancer	ZAR	Portfolio of global companies	100%	Glacier SA platform	5Y geared return @ 400% (4 times) if positive	R100k	29 September’21
3	Investec	ASX 200 Digital Plus	ZAR	S&P ASX 200	First 30% decline protected	JSE share portfolio	3.5Y investment term with a a minimum return of 55% in ZAR if the index ends flat or positive	R100k	1 October’21
4	ABSA	Global Growth Basket – Issue 27	USD	Portfolio of global companies	95% capital-protected	Glacier International	5Y geared return @ 120% (1.2 times) if positive	$25k or $10k for existing clients	1 October’21
5	Investec	International Titans Basket Limited	USD	MSCI World 4% decrement index	100%	Glacier International	5Y return with 100% participation if positive	$25k or $10k for existing clients	8 October’21

* Click on the investment name to see the detailed investment brochure

Important notes about the above table:

• Even though all the above-mentioned investments have international equity exposure, two of the investments are in USD for investors wanting to take advantage of the current strong Rand.
• Individuals, companies, trusts or partnerships can utilise the asset swap functionality explained in the previous section of this newsletter to invest in the two USD capital protected investment opportunities.
• No need to negotiate issuer or advisor fees as it is priced into the products and will not affect the investor’s initial capital investment or return.

 

3.  What’s your biggest asset? 

The ability to earn an income is your most valuable asset, whether you’re a young graduate, employed by a company or a business owner. Not only is it the cornerstone of your financial future, but it also assists you to accumulate assets during your working life. Despite this, about 14 million households face a combined insurance shortfall of almost R29 trillion should family breadwinners lose their income through death or disability, according to the Association for Savings and Investment South Africa (ASISA).

There are various types of income protection available in the market with different qualifying claims criteria. Your existing cover might be outdated, and you might qualify for an upgrade to more comprehensive benefits within the market. Please drop us a line for a complimentary quote or review of either your personal or company cover.

 

4. Rand forecasts

August is traditionally a risky month for the domestic currency, afflicted by the risk-off nature of the Northern Hemisphere summer holidays (where investors tend to reduce risk as they take their annual long vacation breaks). August’21 was no exception with the Rand ranging between R14.30 (strongest) and R15.33 (weakest) against the US Dollar:

The US Fed’s annual meeting at Jackson Hole provided much needed direction, positively impacting emerging market currencies. Confirmation from the US Fed that inflation and labour conditions have improved to the point where they can now commence the tapering of asset purchases. This is likely to happen in Q4’21 or Q1’22 at the latest. The message was positive in that growth is rebounding and stimulus has worked. They also separated the timing of tapering with interest rate hikes. The markets like the fact that the latter is still a very long way away.

Below Investec’s exchange rate forecasts as published during the month of August’21:

 

5.  Fuel prices

Diesel users will be paying less while petrol users will be paying more during September’21:

• Petrol 93 and 95: increased by 4 cents per litre
• Diesel 0.05%: decreased by 15 cents per litre
• Diesel 0.005%: decreased by 14 cents per litre
• Illuminating Paraffin: decreased by 15 cents per litre

Movement in fuel prices is typically affected by two main factors – international petroleum costs, and the movement in the Rand/Dollar exchange rate.

All fuel price changes above include the newly implemented slate levy to finance under-recovery by the SA petroleum industry. Another factor influencing prices is the approval by Mineral Resource and Energy Minister Gwede Mantashe of a 5.7 cents-per-litre increase in the price structures of petrol to accommodate the wage increases for the forecourt employees in line with the Motor Industry Bargaining Council

 

6. Chart of the month

The below chart indicates that investors in the money market are now earning negative real returns (after inflation), and this is expected to continue for the foreseeable future. We strongly advise that conservative investors with a low-risk appetite, to rather consider capital protected investments as explained in a previous section of this newsletter.

 

7. Interesting stats for the month

• 11.9 million people are unemployed in SA – this is scary and unsustainable
• R20 billion – the cost of the one-year public sector wage deal
• R5.52 trillion – the estimated size of the SA economy post the rebasing
• 51 – being the number of times this year that the S&P has hit a record high
• 50% – the amount by which electric vehicles are expected to make up the total US auto sales in 2030
• 71.9% of new car sales in Norway during August’21 were electric vehicles
• $41m – the annual salary Lionel Messi will earn after he joined PSG. While that’s a hefty sum, keep in mind that the club has already sold nearly 1 million jerseys, generating over 25% of his annual in under a week from the portion that they retain
• 42% of US citizens on unemployment now make more money than they did at their jobs
• $41m – the annual salary Lionel Messi will earn after he joined PSG. While that’s a hefty sum, keep in mind that the club has already sold nearly 1 million jerseys, generating over 25% of his annual salary in under a week from the portion that they retain

*Credit to Kim Litter from Ninety-One for the above stats

 

10. Market stats summary

The red block shows the market stats for the month of August 2021. In short, the JSE All Share Total Return index was down ↓-1.7% for the month (up ↑25.2% for the last 12 months). The Financial sector was the best performing sector for the month, up a whopping ↑12.3%. The Listed Property sector also fared well up ↑7.5% for the month. The Industrial sector was down ↓-4.5% while the Resource sector was the worst performing sector down ↓-6.1% for the month.

 

11. Financial indicators as at 31 August 2021

Global indices (NB! Returns are measured in Rand percentage points. For example, the S&P 500 was up  3.55% for the month as measured in Rands)

JSE Sectors:

Currencies (NB! Positive indicates ZAR has weakened for the period, vice versa)

Interest Rates:

 

12. Disclaimer

The information contained in this e-mail is of a general nature and is not a substitute for professional advice. We recommended that you obtain specific professional advice before you take any action. Vista Wealth Management takes all reasonable steps to ensure that the content of this e-mail is accurate and up to date, however, errors and omissions may occur. The accuracy of the information contained should therefore not be relied upon as a statement of fact.