HILTON TARRANT: Fees and costs when saving for retirement are in the spotlight. Perhaps the brightest spotlight they’ve ever been in. National Treasury, as part of its efforts at reforming the retirement industry this month published a discussion paper on costs. South African investors, when looking for offshore exposure, have often been forced to pay up for it. It’s not uncommon to see unit trusts offering global exposure with total expense ratios or annual management fees of 2.5, 2.4%, sometimes even nudging 3% a year.
Lisa Segall, South African director at GinsGlobal, joins us now. Lisa, GinsGlobal is the first manager to package foreign index funds as locally registered South African unit trusts – take us through that. What have you done, what have you packaged up as unit trusts for South African investors?
LISA SEGALL: Hi Hilton, Thanks for having me on the show. We’ve actually been registered with the FSB since about 2001, so we’ve been here a long time. But what we’ve done is over time, as we’ve built up more assets, we’ve decided to cut our fees for both retail and institutional investors. So instead of taking the profit ourselves we’ve actually decided to give back to the client to make the cost of investing much cheaper.
So the kind of offshore funds that we are offering are very simple – normally the benchmarks that most of the active managers use on their own investments. So like an MSCI World we use instead of the S&P500. It’s a bit more conservative. We use the MSCI US. We’ve obviously got European, Japan, and then different sector funds, as well as property funds.
HILTON TARRANT: So what you do is take those index trackers, which track these MSCI indices, no matter where they are in the world, you take the ETFs, bundle those up, and package them as unit trusts which South African institutions and retail investors are able to access.
LISA SEGALL: That’s great. They are actually not ETFs. It’s a different structure. They are index funds. So it’s a full replication, whereas the ETF is more synthetic or you can have a cash or a derivative-type synthetic structure. So we actually do full indexing. It’s a different kind of actual vehicle to an ETF. It’s far more conservative and it’s less risky. So it’s actually structured as a collective investment scheme. An ETF is more seen as a share.
HILTON TARRANT: Lisa, the fees that you have cut now – where have the fees come from, and where are they now?
LISA SEGALL: What we’ve done is we’ve actually given the retail investor our institutional fees, and then we rebate that though the LISP. So, say for a global bond a retail client would pay 15 basis points.
HILTON TARRANT: That’s 0.15% on an equity…
LISA SEGALL: On MSCI World the fee is 60 basis points, because we use the…retail pricing because of flexibility on the trade, and then we rebate back 30 basis points on that. So the net fee to the client on an annual management charge would be 30 basis points on an MSCI World.
HILTON TARRANT: Lisa, this all sounds well and good. How much does an investor need to have available to invest in these funds?
LISA SEGALL: Well, it depends on the LISP, but normally about $1 000 or $1 500.
HILTON TARRANT: So $1 000 up to round about R10 000, R15 000, somewhere around there.
LISA SEGALL: Ja.
HILTON TARRANT: And they would need to obviously do this through a LISP, not directly through yourselves.
LISA SEGALL: Yes, it’s through a LISP. We do do a few clients, but we prefer to work through the LISP.
HILTON TARRANT: What is a LISP, if a listener out there perhaps doesn’t know what a LISP is? Which of the LISPs do you work with?
LISA SEGALL: With Allan Gray and Momentum Wealth, and Momentum locally.
HILTON TARRANT: So a client out there could call up one of these places or send an e-mail to one of these institutions and make contact and say that they want to invest in one of these funds?
LISA SEGALL: Correct.
HILTON TARRANT: Lisa, just to close off with, will you be extending this fund range at all perhaps in the future.
LISA SEGALL: Well, we like to have FSB-approved funds. We’re actually going the FSB route, so a few of our funds are with the FSB now for approval. There are about seven FSB-approved funds that we have in our stable currently.
HILTON TARRANT: Thanks to Lisa Segall. David, very, very interesting, given this focus on fees and given how dramatically lower these fees are.
DAVID SHAPIRO: Lisa says she came in 2001 – that was the last charge we had offshore. And I think everybody got burned horribly then. Unfortunately it hangs with them, but this is the right time to go offshore and I’m glad she’s still around and they are still here, still selling their funds.
You know that if you were in S&P for 10 years you did absolutely nothing and the local market outperformed. But I think it’s time now to make that switch. I think you are going to get very, very good returns from these offshore investments. And this is an easy way to do it.
HILTON TARRANT: Of course there is the currency risk, which there always is. But, as you say, this is an easy way to do it. It’s the cheapest way. These rates are cheaper than Satrix rates.
DAVID SHAPIRO: Satrix are over 1%, I think, or even much higher.
HILTON TARRANT: 0.65%.
DAVID SHAPIRO:I know certainly the db x-trackers that we buy, that I’ve been buying, the fees are over 1%. (* For DBX World, pricing changed on July 1 to 0.6% per annum (ex VAT). For DBXUK, DBXEU, DBXUS, DBXJP, pricing changed to 0.75% per annum (ex VAT). As at July 25, the TER of 1.14% remained published on the DBX website.)
HILTON TARRANT: I bought some of those myself and those fees are 1.14%. You are getting this at a third of the db x-tracker.
DAVID SHAPIRO: The benefit from our point of view is that you can deal on the stock exchange with db x-trackers because they are an ETF, so there is more convenience here, whereas here you have to go the LISP route.
HILTON TARRANT: This is obviously not for very investor. You need $1 000, $1 500. There’s the whole tax clearance thing with SARS that has to happen.
DAVID SHAPIRO: Do you have to get that before you can buy…
HILTON TARRANT: You possibly have to because the money needs to go.
DAVID SHAPIRO: You’ve got to have a R1m discretionary allowance. Every citizen who pays tax has got R1m discretionary, which you can use as your travel allowance as well. You don’t have to go to SARS for that. You fill out a BoP form, one of these forms, just have to submit it, but you don’t have to get clearance for that. So if you are not travelling overseas you can still buy these funds.
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