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Time to swap equities for bonds?

Bonds quietly outperform the JSE over five years.
'Anchoring' – textbook behaviour where investors hold on to current investments hoping to get back to where they were before the sell-off. Image: Supplied

Equities always seem more exciting, with every listed company’s prospects being scrutinised, analysed and debated by hundreds of investors for hours every time something changes in the investment world. Bonds seem boring in comparison.

Not necessarily, says Phil Bradford, portfolio manager of the Sasfin BCI Flexible Income Fund. He maintains that the last five years have actually been very disappointing for investors on the JSE and the long-held belief that equities outperform all other assets classes has been tested severely.

“The JSE All Share Index, like the fabled hare, has been soundly beaten by the tortoise-like cash and bonds,” says Bradford.

“Slow and steady is a good approach, but in real life few people would bet money on the tortoise against the hare. But in investing getting to the finish line is far more important than getting there as fast as possible,” he says.

Bradford, who this year won both Morningstar and Raging Bulls awards in the flexible income category, says his analysis shows that bonds and cash have been an excellent choice for investors, especially if one considers volatility and risk.

Read: How top equity funds protected cash in March and April

“Everyone wants high investment returns, but many investors don’t want to take risks – or cannot afford to,” says Bradford, adding that many people are looking for a decent return without taking extra risk in the current uncertain times.

‘Solid choice’

He says this is one of the reasons bonds are a solid choice at current rates. “A bond’s income and capital are guaranteed by the issuer, like a bank or government, which provides certainty in a uncertain world.

“For once, bonds are cheap, offering high yields at just the right time.”

According to Sasfin’s analysis, the yield on SA 10-year bonds is currently more than double the yield on cash, while longer-dated bonds are providing a further 2% interest. With expectations that inflation will fall to close to 3%, investors who buy bonds at current levels will be locking in returns of 8% above inflation. “These are the type of returns normally only possible from equities,” says Bradford.

While most investments have taken a hammering since the start of the year – including equities, property, bonds and whatever funds hold them – Bradford was sitting on more cash than usual in the fund in anticipation of an increase in risk and volatility due to the expected downgrade of SA’s bonds by rating agencies.

He does not say so, but the image that springs to mind is of a tortoise hiding in its shell at the first sign of danger.

It worked, because he also ducked the havoc of the Covid-19-inspired malaise in the markets.

In fact, the fund reduced its exposure to the market during January 2020, and its cash holdings and liquid assets increased to their highest levels since the inception of the fund in 2015. This meant that when the impact of the pandemic ripped across economies globally and locally, the fund had already reduced its risk profile and was conservatively positioned and thus avoided most of the fallout.

It is now in a position to take advantage of the recent sell-off and invest in bonds at high yields, which “is likely to deliver consistent returns for many years to come,” says Bradford.

Sell, or hold?

He pushes the case for investing in bonds, saying that many investors in shares are asking if it is time to sell or hold on for further recovery. This is a textbook case of behavioural error known as ‘anchoring’, where investors hold on to current investments hoping to get back to where they were before the sell-off.

“This is causing investors to ignore other good, lower-risk opportunities,” says Bradford. “With cash yields at record lows, the answer lies with SA bonds – they are cheaper than other emerging markets and provide low-risk investors with the opportunity to lock in high returns.

“Equities are likely to recover over the next few years, but the outlook is very uncertain at the moment,” he adds.

Read: Why successful investors avoid gambling

“Interest rates are going to fall even further and cash rates could easily fall closer to 3% by the end of the year if the economy does not recover. This is the right time to buy fixed-rate bonds at high yields, locking in rates above 11% for our investors.”

He notes that the fund has returned above 55% cumulatively since its launch five years ago, compared with the JSE All Share, which returned 11%.

Read/Listen: ‘Sometimes just sitting on your hand is also a decision’

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It is risk enough just to live in SA. Putting money in bonds implies trust in the government, good luck! IMHO, get every cent out of SA – while you still can. Einstein said, “We cannot solve our problems with the same thinking we used to create them.”

I see so many comments 0f “get your money out of the country” yet there has not been a single person who has put forward a plausible mechanism to “get your money out”. Maybe one of these clever people can let us all know how they got their money out of the country legally.
Await some interesting responses

Get your money out? I have Eurostoxx50, it is not doing well. At all.

Exchange control in South Africa is dealt with in terms of the Currency and Exchanges Act No. 9 of 1933 and Regulations thereof.

There are two main ways of expatriating funds from South Africa, namely the single discretionary allowance and the foreign capital allowance.

The single discretionary allowance is afforded to all South African residents who are 18 years or older and have a valid South African identity document. This allowance is R1-million per calendar year per individual.

The foreign capital allowance gives a South African resident individual, 18 years or older, the opportunity to expatriate funds of up to R10 million per calendar year.

Prior approval is needed to expatriate funds under the foreign capital allowance. The individual will be required to obtain a TAX CLEARANCE CERTIFICAYE from SARS, MAKE SURE THAT YOUR TAX AFFAIRS ARE TOTALLY IN ORDER, before they will be allowed to expatriate money and prior approval is required.

You will benefit greatly from consulting an advanced tax practitioner.

Stay within the boundaries of the law, that you plan the fund expatriation according to the exchange rate and that you get a good rate from a foreign exchange company.

But there are problems, viz.
1. you have to open a bank account in a foreign jurisdiction,
2. your tax affairs must be totally in order
3. transfer fees can be crippling
4. bank fees and charges out there are flipping high – South African
banks are dirt cheap by comparison to Foreign Banks

If you want to find out more, then this URL will give you all the info that you need.

I have a problem with one of the paragraphs on the article, regurgitated here for your edification.

Sell, or hold?

He pushes the case for investing in bonds, saying that many investors in shares are asking if it is time to sell or hold on for further recovery. This is a textbook case of behavioural error known as ‘anchoring’, where investors hold on to current investments hoping to get back to where they were before the sell-off.

Few people understand the rules for acquisition and disposal of equities, but, basically, there are only two rules

1. ENTRY – buy only when you have done your homework and that includes fundamental research, technical analysis if you are so inclined, market research, long term prospects evaluation, VALUATION (very important) etc. and you have established an entry price (don’t forget those perky fees – you pay them going in and getting out)

2. EXIT – sell only if you would not buy the equity today. What this means is that if you are holding on to equities that you would not acquire today, you should dispose of them A.S.A.P. You only hold shares that you would buy today.

I only have three SA shares on my portfolio at present

1. Clicks
2. Naspers
3. Prosus

The others that I had, I got rid off as I would not purchase them today.

Quidditas – I fully understand the exchange control regulations – the real problem is opening an account overseas (all banks will only open an account in your name provided you are there in person) and normally they insist on a place of residency within the jurisdiction in which you wish to open an account. I want to achieve 2 goals – 1) purchase property in the EU (can’t do this unless you have a
current passport 2) open a trading account so that I can buy/sell shares over the LSE – so far I have run up against a brick wall under both goals.

Wow, really? I cannot imagine that there are 17 moneyweb readers who think it is impossible to get money out of SA legally. Clearly uninformed.

‘fully understands’ exchange control, yet asks how to get money out legally. Then changes the question to something equally obvious. Okay.

Open interactive brokers account. Transfer funds. Cant be any simpler.

Firstly, when deciding on off/onshore exposure, it’s important to include ALL assets in determining total wealth and therefore any residential property (including primary) must be included. In most cases, primary residential property (plus local RA’s, provident funds, etc.) accounts for majority of one’s net worth and thus almost all cash thereafter should be invested offshore to reach said diversification target.

Now the investing offshore bit. As covered, R1m SDA and extra R10m FIA (easy to get tax clearance via SARS if tax affairs are in order) can be used, along with that of spouse – therefore at least R22m available to move offshore per calendar year without too much admin.

There are numerous offshore brokers to use, where you simply get registered and verified for KYC/AML procedures. Many simply require passport for identification, proof of address and proof of source of wealth (i.e. salary slips, tax returns, bank statements). These funds are paid from SA into a trust account, all held offshore and in your name. You can usually only deposit funds to your trading/brokerage account from a bank account held in your name and withdraw to one held in your name. Therefore, your funds are 100% offshore and you can trade/invest these funds as you please.

Personally, I use Gain Capital in the US (feel free to do your own due diligence) and Oanda – they fulfil my needs for equities, forex and commodities trading and investing – including derivatives and have a simply enough trading platform. Their fees are very competitive and customer service is satisfactory, in my opinion. Interactive Brokers is also widely known and respected, besides their recent issue with oil futures trading, but they have committed to make their clients whole again who suffered losses due to a trading platform glitch.

Paying money offshore from SA, I use FNB (due to easy digital platform) but generally do not market them and have negotiated my forex fee to 0.5% – that’s on a Private Clients account – do not settle for anything more than 0.9% away from mid-market rate spot rate, excluding stated their SWIFT charges and commission fee. Your forex rate has the real fees in it – i.e. making forex payment at 1.5% away from market spot on R1m results in R15k fees to them – do not simply look at their SWIFT and “commission fee” – the forex rate is the real cost. Otherwise, local forex brokers such as Forex Capital, Incompass, etc. are usually cheaper and preferable to commercial banks for this purpose.

Once your offshore trading/brokerage account is set up, I would look at getting a bank account overseas. This is the tricky bit and usually requires a work permit or overseas passport and proof of address overseas. Even with an EU passport, I have battled in Europe to the point of buying a property for this purpose. However, a rental contract would have sufficed with my EU passport and should be the case for SA passport holders too. An option is to rent a very cheap place in your country of choice for bank account and use rental contract as proof of address (register your new address with local municipality), register for tax in that country (get local tax number), state you are self-employed and odds are that you will get the bank account. However, it is not guaranteed and process varies by bank and by country.

But getting that cash offshore and held in an account (or trust account from reputable company) is key to dis-investing from SA and diversifying your risk. Even if simply just held in hard currency in your trading account. SA government bonds are offering “attractive” yields for a reason but I do not want to focus on investment advice. I wanted to merely show how it is possible to invest offshore in a trading/brokerage account, held in your name and totally out of SA’s jurisdiction.

I have attempted to answer this question as thoroughly as possible, but “awaiting moderation” now…

I certainly dont have all my money or even much money offshore.

I have a webtrader account which trades across almost all major bourses internationally and lives on the Standard Bank OST platform and I recently opened a USD account at Standard Bank Jersey, leveraging off my kyc/etc of my main Standard Bank account.

As a further alternative to the good suggestions elsewhere on this thread, Standard Bank Shyft is a low cost no-doc app for fx conversions to USD/GBP/EUR/AUD. The cash is fully off shore even if still held in the app wallet after the transaction. The app also creates virtual credit cards if you wish to convert and then buy something.

Finally, valid points on local “offshore investing” although often more correct that not even fund manager’s funds leave SA – many investments are derivative based.

It is almost like there are other kinds of bonds than those issued by the SA government.


Most banks overseas do require you to be there in person (especially true for US, UK and EU banks) but there are reputable banks in Mauritius (can mention ABC Banking Corporation Mauritius) where it can be done via email and phone calls. I have done this without going there physically.I work privately (trading) and I am not paid to endorse any company, bank, broker, etc. I am merely sharing information based on personal experience and research – it’s freely available and should not be a secret – especially for those wanting to dis-invest from SA (I am all for that and heavily encourage it).

Regarding your goals: 1) It is easier buying property in EU with EU passport but it’s not the only requirement. SA passport holders can do this easily as well. Yes, you will require a passport and anyone interested in this option should have one anyways. 2) I have mentioned Gain Capital, Oanda and Interactive Brokers as options for this purpose. They are reputable, easy to open accounts with and funds held offshore, in your name. The UK should have brokers doing exactly the same and these options mentioned could even cover the LSE.

I take money out every month now and I have gained 20% just by getting rid of SA garbage.

This country will not recover…never!

A fascinating Conumdrum this one :
Mentally buying these is like voting ANC , however there is nothing to beat this return & its safe in that the Govt can always print more money , so you will get yr funds back (even if worth 40% of todays value in 5 years time : OR You can put in Foreign Currency , earn basically Zero but likely experience Capital gain (In Rand)via devaluation of the Rand :
Maybe a mixture of both can one really face the reality of being a funder of the Future Plunder ?? (e,g: A new SAA ).
I,m betwixt and between.

@edalsg. I share your sentiment in the sense that SA Govt Bond returns are of the best “real returns” (above local inflation) to be found globally. So long the ZAR holds up. Even foreign funds would have a smallish exposure to high-yielding bonds, like ours.

(SA is, as often noted….is “yield rich, but growth poor”)

The devil is in the choice between high yield (hoping the ZAR doesn’t fall too dramatically again) versus foreign cash bearing near-zero interest, but offers currency protection / capital growth. And the latter foreign funds, almost zero foreign interest to be declared to SARS.

Would say aim for at least 60% offshore cash & 40% ZAR….but wait first to ZAR (along with other EM currencies) to strengthen to around R16/US$ before you move more funds abroad.

Another issue for me, albeit a long-term one, is which currency to hold offshore funds in(?)
The USD dominates obviously as a global “safe haven” currency, as it’s the leading world “reserve currency” (along with BGP, EUR, and Renminbi/Yuan joining the list in 2018). The USD supposedly OK in the shorter/medium term, but long-term I’m weary of the USD holding on to this status: it may just take one small military skirmish against China in South China Sea in the next few years…even it’s a stalemate…to repel US Navy out of region…which will be a clear sign that the USA is losing global dominance (militarily & financially) forever & China gaining. This shift in power may frighten so many global citizens, that people will lighten their USD holdings & increase Yuan holdings, leading to serious funding problems for the US economy (as all their wealth since the 1960’s was partly thanks to US$ being “de facto” global reserve currency, allowing the US to safely take on huge debt, which reflect in American’s above world-average lifestyles. Risk that this would change forever..

And Covid-19 is proof that global citizens get scared rather easily…the virus whispers “boo…” by causing thus far 0,005% of deaths of global pop of 7,8bn…while humanity completely clobber off our economic ladders.

Naspers/Prosus (10c) or Yuan-cash it is, I suppose…

Michael, – I’m interested to know how you as an individual offshore funds for investment in foreign instruments. To my knowledge what many people allude to when they offshore funds is that they give the funds to a broker who buys the instruments on your behalf – so in essence your cash has not left our shores the brokers funds have. Also if you sell your instruments held with the broker you can’t have the proceeds deposited into a bank overseas in your name as the broker as the broker has an exchange obligation bring the funds back to RSA.
Still like to hear some comments on my original post

Agree entirely Michael : I prefer 70/30 off/Onshore but lets not split hairs .Also agree your timing 16:1 to take more funds offshore if desired.

Unless you buy one of the hundreds of thousands non-SA gov bonds of course. Hard to take such blinkered ‘musings’ seriously.

Jaapie – you seem to have oceans of knowledge as to how to externalize funds whilst remaining in South Africa – I would love to hear your expose
Pray share your knowledge rather than silly cryptic comments

You must be the most helpless person ever.
Ask your bank for help.

Jaapie still you are unable to share your knowledge – but lets leave it there as you seem to be an expert at “shooting from the hip”

…it has been said, that in times when investors shun equities by seeing cash/bonds as only option, it indicates that the equity cycle is nearing it’s bottom(?)

I have kept an eye on a few bond funds and as a quick note, the Allen Grey fund in SA bonds did 6% in the last 12 months but has done 5.5% in the last month. The Stanlib fund in global bonds did 25% in the last 12 months but -3% in the last month.

Now tell me which to choose?

Global funds are too expensive at the moment. As mentioned above wait for R16 per dollar and buy low equity funds. When the market drops switch to 100% equity funds.

AG Bond fund very good for investments that need to be in SA.

This is working for me within the constraints of my SA based investment platform.

@grahamcr. I’ve done a new post to try and provide you extra info (instead of adding another sub-post, which gets messy)

I have sympathies for people, like yourself and many others, that gets frustrated by going the direct foreign investment route, just to find too many obstacles in this process.

Fellow commentators ‘Quidditas’ en especially ‘Skopskiet’ covered it nicely, so am not going to say anything they already noted (and agree with).

Skopskiet’s comment is spot-on being that to invest directly abroad, the quickest way is to register on a foreign Online Broker’s website, which has a good reputation and a presence in SA.

A handy website below will help to compare. Interactive Brokers, Saxo Bank’s names crops up in most comparisons…and Skopskiet also mentioned he’s using ‘Oanda’.

The site below is helpful in choosing:

(I’m using Easy Equities US-Dollar trading account to get some funds directly offshore…but still have to open a US$ bank account in my own name, so that I can transfer cash from this broker account to a foreign transactional bank account. This is where it gets tricky, as Skopskiet said…)

The other way to direct invest abroad is via your own fin advisor (from OM, Liberty, Sanlam, etc etc) and be prepared to sacrifice commission (but you’ll get advice & be assisted in this process). Otherwise if not, it’s pretty a DIY affair with foreign online trading brokers, as mentioned.

Now opening a foreign bank account in your own name, in most cases you need to be physically present (i.e. the KYC stuff). In cases where foreign bank allows account opening ‘online’, such online banks could be of questionable background, or in obscure location.) There are exceptions though….Skopskiet mentioned ABC Mauritius.

You can also enlist the services of Brenthurst Wealth / Magnus Heystek to open a bank account in Mauritius for you (..I think Sue Heystek, or Gavin Butchart is looking after that function. You can google their contact details.)

Something totally left-field I came across as an option, is to open a bank account in Georgia (in the Caucuses/Europe), with TBC Bank; Bank of Georgia (some are London FTSE listed)…and since George does not require a visa from Saffas, you can visit there “on a possible LSD trip…”look, see, decide” if you’re so inclined 😉
Good news is that there exist lawyers in Tbilisi, Georgia that can open bank accounts on behalf of foreign investors, by way of signed proxy/power of attorney (where you’ll have to send all your KYC info to)….hence no need to physically visit. Yes, their will an admin fees, but fees generally in Georgia are low (for Westerners).

(Ask Dawie Roodt what he thinks about Georgia. Their govt’s service & documentation delivery will put SA to shame…personal safely comparable to W/Europe & low corruption. Things work.)

The above just a single example that bank accounts can be opened without physical visit, but is rare. Having said that, I still like the Mauritius ABC Banking Corp’s idea from Skopskiet…

Off topic, also good to know that, once you have your foreign bank account open, you don’t have to settle with your local bank’s forex rates to do transfers…instead, you can use specialised money-transfer companies.
The site below is very handy, as it compares (much like our Hippo insurance comparisons) reputable money-transfer companies’s costs:

Lastly, some legalities to consider: if you have foreign assets, chances are that you’ll need a foreign Last Will & Testament to be drawn up in the foreign jurisdiction (which is an extra layer of costs), as upon your death, your heirs/family could suffer a delayed process to inherit your assets if you don’t have a foreign will. Also consider estate duty/inheritance tax in other countries….my impression is the USA is quite steep (hence people invest in havens like Guernsey / Jersey / Isle of Man…wait Mauritius comes also to mind…zero inheritance tax)

As far as I’m aware, ABSA Bank & STD Bank have a presence in Mauritius, that you may want to explore that option. The easiest direct offshore route, is investment from local assets managers offering these products (be prepared to pay commission, but then in a foreign investment “wrapper” product…Sanlam, Liberty, etc….it will save you the pain of dealing with a foreign will. There won’t be any inheritance tax in such offshore wrapper-fund, as far as I understand.(..double-check with your personal advisor)

Hi Michael – thanks for your advisory and options, some of which I have explored (Saxo and 1 other). I have 2 primary objectives 1) being able to trade across the LSE from my computer at home as I do over the JSE and 2) to buy a property in France. I have family overseas but unfortunately they are not in the countries that I want to operate in.
Thanks for your input and I will look into the various options enumerated by you

End of comments.





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