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Who do you believe: The salesman or the analyst?

The dangers of having all your investments tied up in SA.
The JSE is now lagging its peers in the emerging market world – something that has never happened before – making life very hard for investment companies that cannot offer their clients any offshore products. Picture: Moneyweb

It might come as a surprise to many Moneyweb readers that for a brief – but still far too long — period of my former journalistic career, I was seconded to cover boxing while the incumbent writer was recuperating from a liver transplant. Or maybe he was lying in a plaster cast after the legendary Toweel brothers got hold of him after he wrote a piece on one of the family boxers that they didn’t like? I can’t quite remember.

But what I do remember is that you had to be a skilled writer and an even better politician when it came to writing about local boxing and boxers. This was in the days when a fight between Pierre Fourie and Bob Foster could pull 80 000 people to Ellis Park. I remember one infamous fight where Fourie hid some horseshoes in his boxing trunks to let the opposition think he was a true heavyweight, which he was not.

Write something that someone in the boxing world didn’t like and they would wait for you at the local watering hole and bliksem the living daylights out of you, unlike today where people merely say nasty things on social media.

I didn’t last long as a boxing writer and soon hauled out my university degree, showed the editor that I attended some classes in economics and soon thereafter was wearing a tie and blazer to press conferences where a higher level of civility seemed to rule. Where you were served Earl Gray tea and sandwiches rather than a double Klippies and Coke and half a kilo of blood-red rump steak.

Fast forward several decades to the far more sophisticated world of investments where differences of opinion are expressed in hushed tones and with diplomatic restraint, where arguments are settled with a furious interchange of calculations on a financial calculator at dawn.

But along came a small new entrant into the world of retirement products about 10 years ago — a company called 10X Investments — which has based its marketing campaign on continuous attack, criticism and a general lambasting of everything the traditional retirement industry has done or is still doing. 

Active managers, advisors, consultants and investment houses have all borne the brunt of this consistent barrage of criticism. And the message always seems to be the same: the only way to financial salvation is by using this particular company’s investment products to save for your retirement.

Read: SA: A great place to retire and save for retirement

At one stage the company publicly stated that investment advisors added no value and were only another layer of fees that should be eliminated. Go direct and do it yourself, was the refrain. This strategy didn’t have many legs and soon thereafter the company appointed ‘retirement experts’ to guide investors into making the right choices.

It is a proven fact that investors who make use of an investment advisor earn a higher rate of growth over time, as shown by the Dalma studies.

‘South Africa: a great place to save for retirement’

But business must be tough and it must be very difficult to convince investors to invest in long-term retirement products that are compelled by law to invest 70% into the SA stock market (it was 80% until recently). As I have shown for several years now, the local market has been the worst-performing stock market in the world.

SA is losing the investment race (ZAR)

(Periods to 21/9/2017)

It is worth noting that while the JSE has been lagging against the major regions of the world, it also now lags its peers in the emerging market world, something that has never happened.

It must therefore have become very hard to not be able to offer your potential clients any offshore investment products, as that is not what you set out to do.

So what do you do? You again lash out at all and sundry and try to portray the returns on the SA-based retirement products in isolation, with no reference to the returns you could have earned elsewhere. Moneyweb readers are invited to read the article here and decide for themselves what the true state of affairs is.

Imagine trying to buy a second-hand car where the salesperson desperately tries to convince you that all the other cars on the market are gas-guzzling rattletraps with high fuel consumption. But said salesperson doesn’t offer the comparative numbers, just those for the car they are trying to flog to you.

The article, for obvious reasons, does not refer to the returns investors could have earned by investing in offshore products over the last seven to 10 years.

This smacks of desperation and shows to me that the flow of money into traditional retirement funds is under pressure. Many high-net-worth investors have curtailed further investments into retirement annuities (RAs) and pension/provident funds, and in some cases have withdrawn from preservation funds due to the low returns earned. Also, investors are looking for living annuities where they can get 100% offshore allocation if needed or desired. This, however, is not what this particular company can offer to clients.

The article tries to paint a picture of so-called ‘experts’, including fund managers and advisors, who – after the rand hit R15.50 recently – have been calling for clients to move all their money offshore. This is rubbish. Nobody has recommended such a move. And nowhere does it mention that the JSE has been the second worst investment market (when compared to the global regions) over 10 years and stone last over seven, five, three and one. This is like selling a motor car with defective brakes and not telling prospective buyers about it. If the author had any integrity, they should have mentioned this.

The externalisation of SA assets has been an ongoing process for many years. I personally cashed out my preservation fund and paid the taxes in 2011 when I saw the commodity cycle turning downwards. I moved this money offshore and invested in biotechnology, technology and other asset classes we don’t have in SA. The returns have been treble that of the returns on the SA market.

It is a matter of record – contained in my articles on Moneyweb, commentary on radio stations and in company newsletters – that I have been recommending offshore investments for many years now.

Most advisors I know have also been recommending an increasing level of offshore exposure to their clients, and the results speak for themselves.

Even the Government Employees Pension Fund two weeks ago announced that it plans to increase its offshore exposure in order to improve investment returns. This in itself is an admission by the largest investment fund in SA – with assets of R2 trillion – that the SA returns do not look particularly good going forward.

10X has focused its marketing efforts on fees, which is its right, and which I support in many instances. 10X only sells regulation 28 products and doesn’t sell products that are 100% offshore. Their marketing efforts are therefore focused on their local products.

It is also incorrect, in my view, to make use of historical investment returns going back 20 years and more, to justify why we should be wholly invested in only the SA market going forward, as it does. I think the SA of today is a different economic animal to the one that existed 20 or even as recently as 10 years ago. The mining industry is disappearing, construction is shrinking and manufacturing is in a deep structural recession. The country’s global credit rating has been downgraded to junk status by two of the three big credit rating agencies and the financial destruction wreaked by the ANC government will take years, if not decades, to repair.

Only yesterday the Fraser Institute reported that SA has dropped 12 places on the World Economic Freedom Index, down to 86 and now well-ensconced in the bottom half of countries when it comes to economic freedom.

Going forward under current circumstances, I don’t see the JSE producing anything like the kinds of returns it used to produce.

And then there is the other fallacy about the JSE being a rand hedge and that investors don’t need to bother about investing offshore. This oft-touted chestnut has been disproved by the performance of the JSE over the past six months; the rand down 25% and the JSE going nowhere.

A recent study by Nedbank also put paid to that theory. In fact, the performance of the JSE has only a 14% correlation with the movement of the rand.

A sober look at the JSE and its prospects 

For investors interested in a more detailed analysis of the JSE and its prospects going forward, I suggest you take time to read this report by Sharenet analyst Dwaine van Vuuren. It’s not a sales document but a well-researched economic analysis of the companies listed on the JSE. It does not augur well for future investment returns – or your future retirement pot. Ignore these warnings at your peril. 

It confirms other studies I have seen about the earnings prospects of most companies listed on the JSE. Earnings growth of the major SA-based companies has been on a downward trend for three years now – and it shows. Local companies have to battle a barrage of negative factors including surging electricity costs, militant labour, collapsing municipalities, and tighter BEE requirements, to name just a few.

And then there is the land issue, which has exploded on the SA landscape. Please don’t tell me that won’t have an impact on foreign investment flows, business confidence and investment returns going forward. Please, please, please …

You cannot expect only your SA investments to take care of you some 20 or even 30 years into the unknown future. You will probably end up poor, unable to visit your kids and grandkids living abroad, and unable to afford good global medical care.

So let’s settle this argument for all to see. Not with pistols at dawn or fisticuffs over 10 rounds under the Queensberry rules. Let’s do it with real money. I will invest R100 000 of my own money into the 10X High Equity RA fund and an equal amount in the Brenthurst Wealth Global Equity ETF fund.

If the global equity ETF fund is not the winner at the end of five years, I will donate the proceeds of that particular investment to Girls and Boys Town.

* Magnus Heystek is investment strategist at Brenthurst Wealth. He can be reached at for ideas and suggestions.



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Comparing a S28 regulated product with a free style global ETF equity product without taking into account the tax advantages and disadvantages is dodgy.

Why not compare your global equity etf with other global equity etf from the likes of Coronation, Sygnia, Old Mutual, Satrix or whoever is a prominent player in that space? You may just as well compare all RAs to Bitcoin or American lottery.

RAs are a tax efficient way of saving for retirement, they are aimed at those who want to take advantage of the Deferred tax positions that these products offer.

“…..RAs are a tax efficient way of saving for retirement, they are aimed at those who want to take advantage of the Deferred tax positions that these products offer….. ” This “advantage” is often mentioned. How is it tax efficient? You don’t pay now but will later. Is the later tax rate that lower to give a real advantage. If so, will it beat the projected growth expectations offshore vis-à-vis locally. That is without taking into consideration the highest risk viz. the long term political stability (or not) and its impact on economic and financial progress (or not).

This is global versus local

I agree and disagree. 10X has been irresponsible telling the general public that Financial Planners are not needed and add no value. While this may be true in many instances, there are many Planners who run great businesses which add massive value to their clients.

Moving everything offshore is also not the answer in my opinion and looking at the past few years returns on the JSE vs other markets is short sighted. Every client is different and has specific needs so to give blanket advice to move everything offshore is wrong.

Who is the salesman here?

The heading is spot on for a change… We all know who the salesman is in this scenario..
Maybe just a few pointers MH
You invest in RA’s for tax benefits (reducing your effective tax rate and as a added benefit protection against creditors)
REg 28: You can invest 40% outside SA – 30% directly offshore and 10% in the rest of Africa (including your much loved Mauritius).
The weak performance of the JSE is not only the fault of the ANC. What about the below average skills of some of the directors of the big listed companies and FRAUD (read Steinhoff and Resilient to name a few). Or maybe PSG group, share buy-backs galore an so artificially inflating the share price. (Your buddies in CT and Stellenbosch).
Active (read expensive and nice cushy jobs) fund management is dead. Much more so overseas but it will SA is catching up. Another useless layer of costs are trailer fees (your bread and butter).
So Magnus, you want the local market to perform? For that you need liquidity – But you advice is to take all your money offshore (and by implication selling your local assets) – So the local market will drop, dhu! By the way I have some money with 10X and they have outperformed 90% of the active managers (without costly advisers and asset managers). Your comparison between a offshore fund and the 10X fund is a complete joke.

I agree with your sentiments regarding the tax benefits of RA’s, you really need significant outperformance to make up for the fact that SARS is effectively lending you 40% of your investment interest free.

However I cannot and will not in future justy stand idly by when somebody makes unjustified attacks on businessmen from S’Bosch. I see it as a not to subtle code for Afrikaans businessmen. Replace S’bosch with Morningside and the boere mafia with the Jew mafia and you will rightly be labelled an antisemite. “Or maybe PSG group, share buy-backs galore an so artificially inflating the share price. (Your buddies in CT and Stellenbosch). ”

Share buy backs are not fraud or a sign of poor management. Share buy backs when executed correctly and when management understand their own cost of capital can add tremendous value. PSG management, more so than any company I have come across understand the value of their own share and therefore its cost of capital. Do your self a favour go and analyse its LT history. Invariably PSG have come to the market when it trades at a premium or no discount to NAV or bought back shares when it trades at steep discount. This have added significant value for shareholders over and above the performance of the underlying assets.

I am not a sycophantic supporter of PSG or any other member of the S’bosch business community and I am sure you have a long list of personal issues with them. Your comment on their share buy back strategy is however factually incorrect.

Really – So rather than expanding the business or declaring a dividend you buy your own shares? Yes I’m sure top management will be smiling as the value of their share options increase. Pray tell how does it add tremendous value?

Also, smells of insider trading – Management has a far better view of the business than any outsider [other investors] (new projects, profitability etc) – So as management you decide to buy back shares, cancel them, thereby increasing the value of the remaining shares. Nice way to increase your own wealth as senior management – If the share offered compelling value surely the market (including fund managers) would be in a feeding frenzy? Share buybacks are a absolute joke in terms of listed companies – Private companies have far more stringent rules if they want to buyback their own shares – Maybe the same should apply to listed companies.


This is a Global vs Local argument. Thus why do you try and do such a silly comparison, you should know better.

If you run the numbers for the past 5 years, then the local LA will come out tops due the tax benefit of not cashing out.

Similar story with the RA. You are ignoring the savings component which is more important than returns….refer to this article.

“It’s better to keep your mouth shut and appear stupid than open it and remove all doubt”
― Mark Twain

The whole idea is to compare RETURNS – not taking into account the tax benefit on RA’s. MH is trying to explain that foreign investment returns have been better for the past few years.

The Global vs Local argument comes from 10X who is only investing local – thus it is perfectly suitable.

Ok lets take this example:

RA you achieve a 10% return
Offshore you achieve a 15% return.

R100 * 1,10 = R110

R100 less tax = R60 * 1,15 = R69

Hope this helps.

Well, yes it does; you see that your returns are wrong… JSE Alsi is about 18% for last 5 years
S&P is about 72% in the last 5 years

Also you forget currency fluctuations since the Rand is about 33% weaker to the USD than 5 years ago.

R100 *1,18 = R118
R100 => $10 (5 years ago conversion of 10:1) * 1,72 = $17,2 => (today conversation of 1:14) R240,8 * 0,60 (Taxed @ 40%) = R144.48

Hope that helps

Your calculations ignores reality;

Over the last 5 years the JSE ALSI is up 18%
Over the last 5 years the S&P Index is up by 72%
5 years ago exchange was 1 USD : 10 ZAR;
Currently the exchange is 1 USD : 14 ZAR;

JSE: R100 * 1,18 = R118
S&P: R100 => $10 * 1,72 = $17,2 => R240.8 * 0.60 (taxed at 40%) = R144.48

Hope this helps.

You are ignoring a few things here:

1) The 10X High Equity Fund has achieved a return of 10.5% p.a over the past 5 years, not 18% over 5 year’s…..

2) By taking the tax hit you would need to draw-down more on your offshore investments as you are working from a smaller base and thus you will deplete your capital sooner albeit the higher growth.

@Ponks, you said local in your initial calculations and that is what I based the new ones upon. Also, your fund says that it has only been active since 1 December 2015 ( so you can not draw any 5 year conclusion at all from it.

I don’t understand how cash in hand would be less, I have shown you with the same starting base that it is the higher rate of compounding returns that is where the money gets made even taking taxes into consideration.

Etienne beat me to it – but if you take 10% vs 15% (even starting with 40% less for whatever reason you used that) – make the calcs over 20 – 30 years… at 12 years foreign gets ahead. plus not to mention the deterioration of the Rand benefit.

RSA – 20 years = R672.75
Foreign = R981.99

30 years:
RSA = R1,744.94
Foreign = R3,972.71

I love the comments. No dummies on MW. Take your snake oil somewhere else. Thick irony

I think it would be nice if Magnus could develop a calculator with discolsed assumptions and publish it on the Brenthurst site. You enter your current income and expected income in retirement. Then you either choose a local ETF or off-shore ETF (or maybe it has an option to randomly select one from the top 25% at the start of the time horizon). Then it shows you the resulting returns net of all taxes over various time horizons. In part the RA is deferral of tax, the benefit of which may depend on your income level in retirement. Obviosuly RA returns are favourably treated for tax – but there are some nuances to off-shore returns as well (e.g. CGT treatment of exchange rate related gains).
Maybe also include an option to analyze the benefits (or otherwise) of cashing out preservation funds in part or full and paying the tax now.

Put your money where your mouth is – now THAT’S a man I like to read … not the usual “it’s time in the markets … is your investment ready yet? No … let it simmer a little longer while take our fees”

Bwahahaha …. go Magnus, go!

What would be more interesting would be to compare the performance of the actively managed Brenthurst Worldwide Flexible FoF (Fee on Fee) fund with a TIC of 2.44% versus the Brenthurst Global Equity ETF (TIC currently unknown/undisclosed)…. Not quite apples with apples certainly not worse than comparing an RA fund with a global equity fund.

I was under the impression that Magnus Heystek was writing this as analyst and not salesman, until I reached the part about the Brenthurst Wealth Super Duper Fund…

Without getting ourselves mired in detail and specific cases – the core principle that SA resident clients should seriously consider diversification of wealth in terms of Geography, currency, asset allocation and investment manager has to make sense…. without getting lost in how best this should be structured etc. A properly regulated independent and ethical firm will also be able to provide full fee transparency – such as TER. Any quality advisor worth his salt should be able to provide considered and quality advice…

Can we hear more about the boxing? Please please please

I think that Brenthurst ETF is new so it has no measurable record good or bad?

It is obvious that investors should have a lot of global exposure, or lots more than past. What is not obvious is that doing that via a fund of funds is maybe not clever. Everybody can invest R10m a year overseas. If you don’t have the stomach for direct equities selection, then buy a few big ETF. An easy one is SPY as proxy for the S&P500 – very very large and expense ration below 0.1%. If you wish to have diversity, buy similar for HangSeng, Europe, etc.

SPY five year returns are 13.64% per annum with the one year at 18.8%

BUT : buying an ETF only means you save costs. When the S&P drops 30% so will your ETF. US equities are very expensive now! Do not expect to see 14% annual returns over the next 5 years!

Bottom line : buy good assets, not currencies. If you had bought and kept SAB you would have matched or betttered offshore equities

Can somebody please give more information about the Dalma studies that Magnus is referring to.

There have been numerous articles on this topic. I quite enjoyed the Vanguard one as they have a large sample size of active clients as well as passive (ETF’s) to compare it too – thus “real life” comparisons and data.

Magnus is spot on about the hypocrisy of Nathan lambasting financial advisers, only to go quiet about it and appoint advisers into 10x. He is also selling pipe dreams about retiring with 40% more which is lies because returns are not determined by fee differentials alone. Nathan’s behaviour is the same as the life insurance companies he lambasts at every opportunity; deceitful with the sole aim of making a sale. The sheep that have followed will find out too late that they have been sold pipe dreams.
Well done Maggie…great article

End of comments.



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