MARCH 2022

Dear Investor,

We’re currently observing with great relief, a halt in South Africa’s credit rating downgrades. Fitch initially removed its negative outlook in December’21 post the Medium-Term Budget Policy Statement (MTBPS) in which SA’s debt projections were lowered due to strong fiscal performance and significant improvements to key GDP-based credit metrics.

On Friday 1 April’22 (and this is not an April fool’s joke), Moody’s also upgraded South Africa’s credit outlook to stable from negative. Although the rating remains deeply in “junk” status territory, the descent into the garbage heap has been arrested.

The current commodities cycle, together with steps to reduce spending, have raised the prospect that Treasury can stabilise its debt burden. The credit rating agencies, however, still highlight risks that could cause downgrades for SA, and warn particularly of the risk of weak growth, high social demands, additional financial support for SOEs that could lead to “renewed deterioration in its fiscal strength which could likely lead to a rating downgrade”.

Moody’s is set to meet again the 18th November’22, while S&P’s dates are 20th May’22 and 18th November’22. Fitch does not publish dates for South Africa’s credit action but tends to show a similar pattern.


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

1.    Offshore bank account complications
2.    Capital protected investment opportunity
3.    Eleven common reasons for vehicle insurance claim rejections
4.    Rand forecasts
5.    Fuel Prices
6.    Chart of the month
7.    Interesting stats for the month
8.    Market Stats
9.    Financial indicators as at 31 March 2022
10.  Disclaimer 


1. Offshore bank account complications

*This section was adapted from an article originally written by Albert Coetzee from Ninety One.

Investing offshore can be intimidating and holding cash in a foreign bank account is often perceived as an easy way to gain offshore exposure. However, it is likely that the investor’s money won’t grow due to very low interest rates, and upon death, it can be complicated and costly to deal with this asset.

Depending on where the bank account is held, offshore probate may apply on the death of the investor. This means that an overseas agent, like a South African executor, may have to be appointed to deal with the bank account, which could be a lengthy and expensive process.

Overseas inheritance tax (situs) may also apply, which can be as high as 40%, depending on the country where the account is held. What’s more, estate duty may be payable in South Africa as the worldwide assets of a South African resident are subject to this tax. There may be a double taxation agreement between the countries that could provide some relief, but it’s still possible that the higher foreign inheritance tax will be applicable.

The foreign bank account will be frozen while the estate is being finalised. This process can be lengthy, and the deceased’s family and dependents will not be able to access the cash until the estate has been wound up.

Bearing this in mind, a foreign bank account may be useful for those going on an overseas vacation in a few months’ time or to meet other short-term offshore funding needs. It is vital to obtain professional financial advice to ensure proper estate planning in respect of all your assets. For those investors who are looking to build up an offshore nest egg over time, there may be other, more efficient investment options to consider.

Due to the probate, situs and foreign estate administration difficulties mentioned above, we advise Vista Wealth clients to rather make use of “offshore policy wrappers” while building an offshore nest egg. These “offshore policy wrappers” are offered by most SA Linked Investment Service Providers (LISP) like Ninety One, Glacier and Momentum. The main benefits are summarised below:

  • Investors don’t have to worry about personal tax reporting. The LISP takes care of all the tax administration by calculating and paying any tax due, on behalf of investors
  • No income tax is applicable, only capital gains tax (CGT), when invested in unit trusts (UTs). This is because the underlying UTs are in roll-up funds, so interest income and dividends are not distributed – investment income is capitalised
  • What’s more, CGT is taxed at a rate of only 12%, versus a maximum effective rate of 18% for investments not wrapped in a policy. So, there may be attractive tax benefits for investors being taxed at a higher marginal rate, when investing via offshore policy wrappers
  • Investors can nominate a beneficiary who will receive the benefits on their death, thereby avoiding some of the offshore estate costs associated with foreign bank accounts and offshore UT funds that are not held in a policy
  • There is no need to appoint a foreign agent to deal with this asset if there is a nominated beneficiary, and no offshore inheritance tax nor South African executor fees will be payable. However, estate duty may apply in South Africa
  • On the death of the investor, the proceeds of the policy will be exempt from CGT, if the policy is transferred to the nominated beneficiary
  • After transfer, the beneficiary will have immediate access to the investment and no investment term will apply


Underlying investment options

It is important to remember the offshore policy is just a “wrapper” and the underlying investments are still UTs, Share/ETF portfolios or Capital protected structured products. Once the offshore policy wrapper account is open, the actual investment still needs to be done. Clients are classified as aggressive, moderate or cautious based on their time horison, risk appetite and investment goals. There is a direct correlation between this classification and the rate of return where history has proven that the more aggressive investment has a higher rate of return over longer time spans but with more volatility. The rate of return is however not guaranteed as the investments are directly linked to market performance. Below a little more about UT, ETF and Capital protected structures:

  • Unit Trust is a type of investment that combines your money with the money of other investors who have similar investment objectives. UTs on a LISP are roll-up funds, so interest income and dividends are not distributed – investment income is capitalised
  • Offshore ETFs portfolios has in recent years proven to be not only the most cost-effective underlying investment for our offshore clients, but has also been outperforming active fund managers
  • Capital protected structures are term products (between 3.5 and 5 years) which remove the volatility for the investor while protecting their initial capital. The underlying investment of the protected structure is usually an international equity index

The table below summarises which fees applies to which investment option:


Choosing an offshore investment option with low volatility and a higher return than bank account interest

As mentioned earlier, foreign cash may be prudent for some investors as a short-term parking facility. But it is all too common for investors to have ‘lazy’ money in a foreign bank account for an unspecified period. Holding foreign cash rather than a diversified basket of assets can be risky, as investors are purely exposed to the exchange rate, which can be volatile.

Longer-term investors who seek an alternative to foreign cash, could consider accessing a low equity multi-asset fund, such as the Ninety One Global Multi-Asset Income Fund (the Fund). The Fund, which aims to produce attractive income with capital growth over the long term, invests in a mix of global fixed income assets and equities. Equity exposure is no more than 40% of the value of the Fund. Investors can invest directly into the Fund’s dealing currency (US dollar).

In the below chart we compare returns from offshore cash (USD dollars) to an investment in the fund. The light green line at the bottom of the chart represents US dollars. It shows that $100 000 invested in US dollar cash five years ago, would have left an investor with pretty much the same amount of cash after this period – a case of a return of capital, rather than a return on capital.

Of course, an investor would have had to assume some risk, to earn the more attractive returns that the Fund achieved over this period. It is however important to note that the comparison below includes tax implications as a full disposal of the fund was done at the end of the term, reducing the return for the fund.



2. Capital protected investment opportunity

This is the final call for the Investec EuroStoxx Select Dividend ZAR Autocall, a partial capital protected investment linked to the performance of the EuroStoxx Select Dividend 30 Index. The index provides exposure to a broad range of companies from developed countries in the Eurozone, comprising of 30 of the highest dividend yielding companies.

Below the terms of the investment opportunity:

Even though the potential return of this opportunity is advertised as 16.5% per annum (pa) in ZAR, we’ve been informed by a reliable source that due to the recent volatility in the equity markets because of the invasion of Ukraine, the potential return might be closer to 19% pa in ZAR. Obviously, this is not guaranteed and dependent on market factors at trade date, but Investec has assured us that they will pass the full benefit onto the investors. Even if it is not 19%, 16.5% per annum in ZAR is not to be sniffed at! 

We believe it is a great opportunity as investors have 5 bites at the cherry! It can autocall in year 1, 2, 3 or 4, with a last chance at maturity (year 5). Each time increasing the potential enhanced return. Below payoff examples:

  • Assume index is negative in year 1 and year 2, but positive in year 3 – Enhanced return 49.5% (3 X 16.5%) in ZAR
  • Assume index is negative by less than 30% at maturity – Capital protected
  • Assume index is negative by more than 30% at maturity – Capital loss

Past performance is no indication of future performance and as such, the below back testing results of the Index, must be read with caution:

Lastly, investors wanting to participate in this opportunity must have a local JSE Trading account. The account does NOT have to be with Investec/Vista Wealth to participate. Final date to confirm participation is Thursday 7 April’22.

Click here to view the detailed brochure for this investment opportunity.


3. Eleven common reasons for vehicle insurance claim rejections With the upcoming April holidays, many of our readers will be traveling for a well-deserved quarterly break. We believe it is an appropriate time to highlight the most common reasons behind vehicle claim rejections (partly or completely) and what you can do to avoid this from happening. Below are 11 most common reasons why insurers could reject your claim:

  1. Outstanding premiums
  2. Material misrepresentation
  3. Unroadworthy vehicle
  4. No vehicle inspection carried out
  5. Unspecified or unlicensed drivers
  6. Driving under the influence or recklessly
  7. Fleeing the scene
  8. No write-off cover
  9. No tracking and security device
  10. Vehicle used for business
  11. Vehicle not parked securely at night

Feel free to contact or 0721513458 should you wish to discuss the points or review your current policy to ensure you are covered correctly.


4.  Rand forecasts

The rand has shown reduced volatility this year in comparison to other emerging market currencies. This is also likely reflective of its somewhat reduced credit risk as markets perceive a lower risk of default, in line with Moody’s revised stable outlook discussed in our introduction.

In their statement, Moody’s adds that it “expects that the government will continue to pursue its fiscal consolidation strategy. In the meantime, tax compliance is likely to improve gradually as the South African Revenue Agency (SARS) rebuilds some of its institutional capacity”.

South Africa’s official stats for Q1.22 recorded R4.9bn in foreign purchases of SA bonds (net of sales), with this capital inflow a strong beneficiary for the rand. JSE foreign transactions data also reflecting general appetite through the quarter.

SA’s expected case probability of no downgrades has increased and reflects a more certain environment for SA’s state finances, although reforms to the onerous regulatory burden and polices impeding free market dynamics are still urgently needed to bolster growth.

Below Investec’s most recent “expected case” exchange rate forecasts:


5.  Fuel prices

A stronger rand and the government’s decision to intervene means South Africa’s “record” petrol price hike this week will be slightly muted, say economists at the Bureau for Economic Research (BER).

Government’s intervention to reduce the general fuel levy by R1.50/litre for April and May means that the petrol price is expected to increase by “only” about 30 cents per litre on Wednesday (6 April’22), although diesel should still go up by about R1.50/litre.

An average litre of petrol is now expected to cost R21.90 inland, and R21.18 for coastal regions. The same costs for diesel are expected to reach R20.98 (inland) and R20.37 (coastal) respectively. These changes are yet to be confirmed, but the April fuel price will be adjusted on Wednesday 6 April’22.


6. Chart of the month

* Credit to Momentum Global Investment Management for the above chart and commentary below

In line with our capital protected investment opportunity, the above chart shows the calendar year total returns for the MSCI Europe ex UK index and the maximum drawdown the index experienced over each calendar year since 2000. Maximum drawdown reflects the greatest peak-to-trough fall over the period (the worst possible loss an investor could have made if they had bought at the peak and sold at the trough in the same calendar year).

European equity markets have experienced heightened volatility in the past two months and uncertainty around the ramifications of the war in Ukraine which has weakened market sentiment. Considering the rapidly evolving situation, investors are finding a level which discounts the heightened risks and the financial consequences (which will be felt more in Europe given its higher dependence on Russian gas). Despite recent volatility, this year’s maximum drawdown (so far) of -21.4% is only marginally worse than the average calendar year maximum drawdown of -20.9% since 2000.

Even during the strongest years for markets, there are always periods where markets fall. Volatility and capital loss are part of investing in any financial market and should be anticipated. Times like this tend to lead to a compression of investor time horizons. Now, more than ever, is a time for a longer term perspective, riding out the short-term volatility, to participate in the recovery of which timing is unpredictable, but surely lies ahead.


7. Interesting stats for the month

  • R1.5 trillion SARS net tax revenue in 2021/22 (25.1% increase from previous year)
  • 60 – the highest monthly level the Absa Purchasing Managers’ Index has been in almost 23 years since record keeping began in 1999
  • Russia supplies about 20% of world wheat exports; Ukraine supplies about 10%
  • $284bn – the amount of frozen or partially frozen Bank of Russia assets by 7 countries
  • More than 15,000 Russians have been arrested in anti-war protests
  • €100 billion – Germany’s commitment to spend on defence moves the country from 7th to 3rd largest player behind US & China
  • March Global Fund Manager survey shows 60% of investors now expect an equity bear market in 2022 (up from 30% in February)
  • Americas wealthiest top 1% (Source: Federal Reserve household wealth report – Q4 2021):
    • $23 trillion – Stock portfolios value of top 1% and own a record 53.9% of individually held shares
    • $45.9 trillion – Their total wealth – reaching a record
    • >$12 trillion (or >33%) increase in their fortunes during the pandemic

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


8. Market stats summary

The red block shows the market stats for the month of March 2022. In short, the JSE All Share Total Return index was flat 0% for the month (up ↑18.6% for the last 12 months). The Financial sector was the best performing sector for the month, up a whopping ↑11.4%. The Listed Property was also up by ↑5.1%. The Resources and Industrial sectors were both down ↓-2.3% and ↓-4.7.4% respectively.


9. Financial indicators as at 31 March 2022

Global indices: (NB! Returns are measured in Rand percentage points. For example, the S&P 500 was down -1.47% for the month as measured in Rands)


JSE Sectors:



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


Interest Rates:


10.  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.


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