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Naspers and Steinhoff: Why I won’t invest in the JSE Top 40

Brush up on your Chinese for a better retirement?

Imagine you are an investor planning for retirement in a modern, first-world country such as the USA,  Japan, Germany or even Sweden, for that matter. Imagine too that your investment advisor recommends you put 75% of your retirement capital in one, developing country with a very small stock exchange, less than 1% of total global market capitalization.

Even worse, this stock market has one company — through sheer luck or pure brilliance by management — that completely dwarfs that market, constituting more than 20% of the market cap of a very popular market index.

Strip out the performance of that particular company over the previous 12 months and you find that the rest of the companies listed on that market, in aggregate, have not shown any growth at all. 

Then compare the performance of that particular stock market, both in global currencies or in local currencies, and you find that country’s stock market is last or second to last over almost any period from one year to five years and more.

And if you consider a comparison with the developed market, do the same against its peers in the developing world, and you find something similar: its performance is sadly lagging and the under-performance is getting worse as time goes by.

Would you think the advisor is doing his/her job? Would you be satisfied to see that your global personal wealth is being decimated year after year, thereby shrinking your global purchasing power slowly but surely. 

At the same time, your friends and neighbours have been investing prudently, diversifying their investment across a range of so-called hard currencies and different countries and industries. 

To make matters worse, your investment advisor has also recommended that you purchase some residential property in that same country, which apart from one or two very small regions where only the global rich can afford to pick and choose the best properties, has been on a downtrend for more than ten years. In local currency terms, the average property prices have declined by 20% in real terms and in global currency terms the decline has been around 50%.

Chances are that you will not be happy with your investment advisor, most probably complaining at some regulatory body that the advice was reckless and high risk. And it would be difficult to defend against such a complaint….

How Zuma made you poor

This, dear reader, is perhaps an over-dramatization of developments over the last ten years or so of what has been happening to the average investor with assets locked in South Africa under the Zuma administration. The most striking legacy of the disastrous rule of Jacob Zuma since 2007 (when he became head of the ANC) and 2009 president of the country, has been the slow but certain impoverishment of the average middle-class South African. By all metrics, too numerous to mention in this column, South Africa has gone backwards at great speed. Gross Domestic Product per capita in US dollar terms, fixed domestic investments, foreign investments, business confidence, consumer confidence — you name it, they have gone backwards. 

Economic growth at about 1.5%  per annum over this period, has all but missed the upturn in global growth

Yet, most South Africans investing and planning for their retirement are forced by government decree to invest 75% of their assets into this one country with a small and illiquid market where five funds (Naspers, BAT, Richemont, Sasol and Old Mutual) constitute about 30% of the market capitalisation. Chuck in another three companies and they jointly take up the total to almost 40%.

Before its spectacular meltdown, the market cap of Steinhoff was close to 8% of the JSE (at its peak of R100 per share).

Compare this with the US market where the largest listed company (Apple) only makes up 2.2% of the market cap of that market, and even that relatively low percentage has the experts worried.

I have previously (June 2016) stated that I am not a fan of the Top 40 index as an investment vehicle for the average South African investor. The major reason was the over-concentration of certain sectors in our market. At the time I was referring to resource stocks, which in the previous bull market in commodities pushed up its relative share to above 40%.

Many saw these comments as being anti passive investing. That’s not the case, just that I considered the Top 40 to be too concentrated and potentially volatile for my liking. I have recommended passive investing in global markets for many years with great success.

This, of course, set the local index-punting rabid dogs on my spoor. It reminded me of that old saying: “Hell hath no fury like a vested interested threatened.” The debate about active/passive investments in the South African context often strays from the point and becomes deeply vicious and vindictive.

I remain steadfast in my views that the Top 40 index is not appropriate and carries a lot of risk; much more risk than the average investor suspects. I would not invest my own money in this instrument and I don’t recommend that you do.

The Steinhoff debacle has amplified my warnings about concentration risk. The biggest risk now is the fortunes of Naspers, whose rise to fame and fortune is on the back on a single investment of $33 million in a Chinese start-up called Tencent made in 2002 or thereabouts.

Here, we have one company — listed in another country far away in a foreign language and culture very few understand or follow — which makes up about 15% of total market cap of the JSE overall and 20% of the Top 40 index. Former journalist colleague of mine Ann Crotty — now writing for the Financial Mail — recently warned investors to take further note of the regulatory environment in which Tencent operates in China. An investor’s biggest risk in Tencent — and hence Naspers — and hence the JSE — is a change in the political climate there, which could spill over in globally listed Chinese companies. 

Nothing might ever happen with Tencent or it might happen tomorrow, but the risk is always present. 

The over-concentration of risk on the JSE has seemingly woken some members of the Government Employee Pension Fund (GEPF), who have written to the Public Investment Corporation, the largest investment fund in SA and which has an exposure of about 15% to Naspers, asking how this issue is being dealt with. I think they are right to be worried and it will be interesting to see how the PIC responds in the new year.

On a final note: I have written several articles in the past about Regulation 28 of the Pensions Act and the restriction it places on pension funds and their ability to invest offshore. Living annuities have thus far escaped these restrictions and investors could, after the age of 55, move pension monies into living annuities which could give 100% offshore exposure.

Late in the day of December 15, 2017 investment giant Allan Gray sent out a short press statement indicating that living annuities will also now be subject to Regulation 28 of the Pension Act, with a maximum of only 25% allowed offshore. This has come about as Allan Gray has reached its maximum permissible offshore exposure of 25% of total assets (at company level).

The one thing I’ve learnt in the media business is that if you want to bury a story you release it late on a Friday just before a long weekend or a public holiday. Not that I’m accusing AG of deliberately doing this, but the effect nevertheless was that the financial media completely missed this story.

This comes at a very bad time for pensioners wanting to get offshore exposure. The rand has strengthened remarkably over the last three months from R14.50 to R12.50 and would have represented a great opportunity to get offshore assets at a discount. But this is not to be for potential AG investors in living annuities. 

It’s not for me to tell investors what to do, but if I were retiring in the next couple of weeks and months I would be looking for another investment platform that gives me 100% offshore, or at least the opportunity to do so if I wanted to.

A prosperous and happy new year to all of you.

*Magnus Heystek is investment strategist at Brenthurst Wealth and can be reached at magnus@heystek.co.za for ideas and suggestions.

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Spot on MH!
As far as I understand, the AGLA 25% foreign allocation is temporary! Lets see if AG will comment. I am an AG client. And yes, that late notification caught me by surprise to say the least!

I haven’t seen the press release, but there’s a big difference between the living annuity product being restricted to 25% offshore, and the AG rand-denominated offshore funds being restricted to 25%. If one can still invest in 3rd party offshore funds, then the product as a whole is not restricted.

Update: Having now seen the Practice Note, the restriction is in fact on a product level.

Regulation 28 is the ANC’s buoyancy device or emergency jacket. Without it the ANC will be blowing bubbles as it drowns in debt. The socialist government will only be viable for as long as there are ample strong capitalists around to fund the looting.

Voters never contemplate the ideas that the viability of socialist policies are totally dependent on the successes of capitalism, that the viability of BEE is 100% dependent on white people and that the so called WMC is the biggest contributor to social grants.

The majority of voters embrace the victim complex in an effort to avoid taking responsibility for their own circumstances. As victims they are “entitled” to compensation, and that compensation can only be provided by the capitalist class. How do you force owners of capital to stick around in a toxic environment? It requires intelligence to build wealth, and intelligent people are always aware of their options.

Those with the license to loot simply use their legislative powers to pass a law, to tie capital down, fence it in, to create a pool of capital that can later be forced, by using the same process, to fund government expenditure. They will tell you that a “safe investment” in government bonds is for your own benefit.

Over a period of decades citizens grew used to, and even take pride in their victim status. Accountability, taking responsibility, adding value to the lives of others and ethical behaviour has become “western concepts.” These attitudes are now in charge of the legislator. When they decide to loot even further, they simply pass another law that enables them to plunder in a legal manner.

“The law perverted! And the police powers of the state perverted along with it! The law, I say, not only turned from its proper purpose but made to follow an entirely contrary purpose! The law become the weapon of every kind of greed! Instead of checking crime, the law itself guilty of the evils it is supposed to punish!” Frederic Bastiat – “The Law”

Magnus, luckily there is the Equally Weighted Top 40 Index available.

As at 30 Sept that Satrix UT held FirstRand/RMBH at 4.93% in the top spot and 2nd was Naspers at 3.10%.

But onto the main point, I also wish Reg28 was different. I’d be satisfied with a 50%/50% local/foreign mix even.

Magnus have a very valid point and as an active investor I respect this argument.
Re Supersunbird – personally I would rather consider the Capped Swix Index from Old Mutual if I’m looking for local Top 40 exposure. The TER is below 0,50% per annum. It limits concentrated exposure even better.
The point however is that a high global investment spread is imperative.

Moneyweb pls provide us with independent facts about the change to Regulation 28 if possible!

The writer of the article did not say that Regulation 28 has changed. He rather implies it would be in the interest of retirement fund investors if the limit of 25% offshore exposure can be increased substantially. He furthermore elaborate on Alan Gray having to limit the offshore exposure of living annuity investments whilst Regulation 28 do not impose such limitation. Personally, I would instantly switch my living annuity to another product provider if such limitation is imposed by the product provider / platform. Of all living annuity platforms, Glacier probably has the widest fund range to choose from and they ensure that such self-imposed offshore limitations do not become applicable.

Thanks for that

4 months ago I started splitting my investments between JSE listed companies and crypto currencies. My growth on the JSE the past 6 months is now about 10%. However with crypto currencies, the past 4 months, it’s close to 180%!
That said I still won’t invest all my funds in one particular sector. Even with the growth in crypto you still need to diversify outside it.
My growth in property is only about 10% since 2008 :(. Ja well, I guess that one did not work out 🙁

That said DO NOT invest all your money on the JSE! Very risky and minimal growth! Fact! I have lost way too much money on the JSE the past few years. To a large extend this was due to bad government policies and now, recently, corporate corruption.

SELL crypto now.

Let is know how that went.

I just sold bitcoin (at 105% profit) and bought additional ether. I recon it is much easier for ether to go from $1,000 to $2,000 vs bitcoin going from $15,000 to $30,000!

Correct as usual MH.

Any index investment in SA is suspects MH says.

What few recognise is that the same applies to non-index asset managers too. There are just too few reliable asset managers in SA and little to zero prospect of this improving. The missed both African Bank and Steinhoff. If Coronation could foul up twice well then………………! The usual suspects in Nedbank and Stanlib did not learn either.

– Emigration of the best talent in SA gratefully received by civilised countries

– Emigres offspring stay in those civilised countries

-Quality graduates from the best of SA tend to emigrate to civilised countries destroying any turnaround in supply of quality asset managers. National Health lunacy and legalised land theft will case more damage than zuma could ever imagine he could cause. SA will be devastated of human capital of quality

-More race based BBB-EE will nuke any possibility of improvement through entitlement before merit.

Invest the major portion of monthly contributions offshore related to get advantage of currency protection AND a wider and better range of both assets and asset managers.

Best still; if you are under 30, GO personally offshore if possible.

LOL Magnus – spot on – now what are your top 10 international stocks? Pray tell!!

I have my reservations in taking all your money offshore instead of investing a portion in locally listed Eft’s with 100% global exposure. There is a range of them to choose from. They also come at low cost. If you invest in another country you need to take into consideration the estate duties that apply in those countries. In the US & UK this can be as high as 40% of the value of the “situs” assets if it’s above a certain amount ($60K US or 352k pounds). In instances like this consider investing via a Guernsey based pension plan from a licenced reputable company. The ZAR has also been strengthening against all major currencies for 12 month now, and can continue to do so for the next 12-24 months. The previous two cycles where the ZAR strengthened against major currencies lasted 24 months and 36 months respectively. I’m certainly in no rush to get foreign exposure right now. It could be a costly exercise.

@Koos. I certainly hope you’re correct in predicting the (shorterm) strengthening of the ZAR. All my Rand-hedges at Coro/Nedgroup (in global funds & resources, which is also rand-hedge to large extent) the past few years did well.

I differ from your investment viewpoint….NOW is the time to ADD to your rand-hedge portfolio, and if you haven’t as yet…start now. Even if it means making shorterm losses on a stronger rand in the next year or so…but, oh boy, when the rand starts it’s downward trend again, you’ll see healthy gains in portfolio 🙂

Longterm, the rand will always lose value due to inflation-differential compared to developed countries. That’s a given. Maybe now the ZAR appears oversold and could strengthen further it seems. But only so far until the next political bombshell!

My long-term investment strategy is based on the strategic view that SA is slowly backsliding into obscurity/insignificance/like most sub-Saharan African states after ousting colonialism. It’s a negative viewpoint…but it seem to work well in the SA context…I have proven myself right most of times. (SA’s future is unfortunately linked to the level of education of the majority voter, irrespective of what political party will rule.) (“Nee, alles gaan NIE regkom nie”).
Plan your investments accordingly…since one’s home and cars are already rand-investments/expenses, one can just as well have 100% of discretionary funds offshore.

I fully agree with your diversification comment. But the current strength in the rand is only a temporary blip in it’s long-term downward path. Golden opportunity to Rand-hedge or go offshore is now.

Allies SAL regkom – Cyril het so gese so glo hom…

Where is my comment?

above my reply!

Yeah, well better late than never Moneyweb.

Under “My Tools” in top right corner you can go to “My Comments” and see if any comments have been held for moderation. I assume certain words trigger it.

Thanks will llok for that next time……….took a few hours for this one to get through.

Another point:

If you don’t want to play the Reg 28 issue in your life, then don’t play the tax benefit game with government. You are then free to take 100% of your after tax money overseas, and not enjoy the big tax incentive.

If your employer forces you to save for retirement in retirement vehicles, that is an issue between you and your employer, there is no law that forces your employer to do that.

Employers gave remuneration policies and some of them make pension fund contributions compulsory. try and find a decent company that gives you an option, there are none unless you want to work for a Mickey Mouse company.

Still an issue between you and your employer. It’s not legislated that companies must do that (although some say they should make it compulsory).

Please note that the ZAR strengthened to the $ from R17.70/$1 to the current R12.39/$1 in the last 12 months. Also note that the last cycle where the ZAR strengthened lasted 36 months where the ZAR strengthened from R11,70/$1 to R6,56/$1. This was over the 2008-2011 period. The cycle before that lasted 24 months over the 2001 – 2003 period saw the ZAR strengthen from R13.80/$1 to R5,60/$1. My point is that you need to make a decision not based on emotion and negativity, but on current facts. Zuma is out, and the current cycle could continue for some time to come working against your foreign investment all the way. Keep it balanced and diversified.

You’ve got your facts wrong Koos – Rand was at R13.70 to US$1 a year ago, not R17.70.
Agree though with your comments on keeping balance and diversity.

Be very careful with any offshore product marketed as an “offshore pension” or “offshore RA”. They’re not retirement products at all and SA retirement rules don’t apply. They’re complex and high-cost products which are miss-sold by dodgy companies. Be warned!

What also needs consideration with offshore investments are tax issues, probate costs in case of death and various counter-party risks. The worst mistake to make is to exchange a known risk for an unknown risk merely because you are not an ANC supporter. South Africa still has the safest banking system in the world and the best-regulated stock exchange in the world. Even after the Steinhoff event.

ZAR/$ was trading at a high of R16,95/$1 on 20/01/2016. My point is that it has been one way traffic since then, and if history is anything to go by, it will continue to strengthen over the next few months.

It’s Jan 2018 Koos – 24 months later – although it’s easy to make that mistake 3 days into a new year. Remember though why it was R16.95 – Nenegate, an extreme event. CR election has brought a positive sentiment for now, but SA still faces the same fundamental problems. The US Dollar has also lost some value lately, which has pushed the Rand higher too. No reason to believe that Rand will strengthen much more from current levels anytime soon.

My point is that people make choices based on emotion. Every time the ZAR tank because of local events people want out. Fin advisers are acutely aware of this and use this “opportunity” to sell products to emotional clients. They love these events, because it means business. Meanwhile back at the ranch the ZAR continues to strengthen (or foreign currencies weaken – whichever tickles your fancy), and their investments never reap the benefits as promised. Then after a year or two when the ZAR is overbought and it really becomes time to diversify into foreign assets, they start selling local products because of weak foreign investment performance. Top performing Unit Trusts and ETF’s in 2017 was mostly (-TOP40, -Top25, -Resources and Momentum based).

It is interesting how we sit in SA with blinkers on thinking SA specific risk is what is the main driver of the ZAR. At the same time as Nenegate most other EM currencies bottomed out. Put the ZAR, Real, Lira, Ruble vs USD on a graph or alternatively an EM currency index you will see that they pretty much all EM FX bottomed out at the same time and recovered post Dec15/Jan16. Dollar strength with first hike in 10 year, Chinese growth fears, oil below 30$ a barrel general risk off sentiment. Since Nenegate we have had a boatload of ZAR negative news emanating from SA. Gordon fired, downgrades, state capture. Yet through all of this the ZAR has strengthened.

@Koos, the 2008-11 cycle is still fresh in my mind…month after month very smart people telling me the ZAR can’t possibly strengthen further. They were wrong and it strengthened more and for a longer period than expected. Given the speculative nature of capital, no reason the same cannot be repeated. My guess is that we are more likely to see R10.50/$1 before we see R15/$1….but its only a guess.

@Dananzi – I agree 100%. Not saying the very long term ZAR will remain strong, but be very cautious when Fin planners comes to you with the ZAR weakness argument after a vicious ZAR swing like the one we had after Nenegate. Your foreign investments is bound to suffer for a few years after that if you lend your ears to them. When they start coning to you with talk of local investments because of great returns after a year or two, it’s time to diversify into foreign assets.

I also wasn’t aware of the update by AG.

What Foreign portfolios would be worth recommending for someone looking to diversify?

Thank you Magnus for this article and many others like it. As usual your comments are spot on.

Referring to the article : https://www.asisa.org.za/media-release/living-annuity-drawdown-rates-show-marginal-increase-in-2016/

“According to the 2016 Living Annuities Survey compiled by the Association for Savings and Investment South Africa (ASISA), South Africans had R333.2 billion of their retirement savings invested in 380 186 living annuities.”

Assuming that 25% of this money is already offshore then it would take about R75b for most retiree investors to reach 50% offshore exposure. Since most of these people are financially bound to this country the money would flow back to SA over time.

Looking at the morality of the situation, LA holders have paid their dues and are now normal taxpayers having almost no tax breaks.

It is high time that the retirement industry stop hiding behind reserve bank regulations and start standing up for their customers. This issue needs to be moved up on the agenda. Some guarantees for living annuity holders would go a long way to restoring some confidence in the country and help to mitigate the lost 10 years.

To answer Justcurious

Allan Gray-Orbis Global Equity Feeder Fund and Old Mutual Global Equity Fund have been top performers over a long period. Foreign equity markets could easily see a 10% correction in 2018, by then the Rand could be much weaker so tread carefully and be willing to stay in for 5 years. It will pay off.

For me too, Orbis (this is equities only) was a great investment since 2010. Look at their track record since 1990 – they beat world index comfortably, after fees. They are now very big though.

Yes OM global equities also did extremely well over this extended bull market. Wish I spotted this earlier.

So in 2016 the average living annuity was R876413 generating about R4835 per month.Who can live off that kind of income.Perhaps some pensioners have a couple of living annuities and have other sources of income but it’s still clear that most pensioners are having to rely on their children to get by!

What’s happened to Australia’s finest? He’s gone very quiet. Perhaps he is with Magnus!

Shhh!

…I know. We kinda miss this bloke! 😉

Based on the inflation differential of 4-5% per annum and going back to the early 1990’s the rand should be trading between 9 and 10 right now, in other words it’s still about 20% undervalued.Saw a bigmac index article last year giving an adjusted fair value of R9.61 which makes sense to me.

That’s the Zuma factor

Unfortunately the Zuma factor will remain long after he’s gone. None of the damage done can be corrected overnight.

Stupid question – but where do I get a 100% off shore investment company that doesn’t charge an arm and a leg?

Mathilda, the lowest cost, rand denominated, equity off-shore fund is probably the Satrix MSCI World Index Fund. Check Satrix out. You could also consider the Fairtree Global Smart Beta Index Fund offered by Prescient Asset Managers or split between these funds. Getting off-shore exposure at a cost fee of lower than 0,50% per annum is very good as these two funds offer. When considering investing some funds off-shore, one should always try to make that move when the Rand – US Dollar exchange rate is lower (or stronger) as is currently the case at around R12,35 to US $1. The flip side of the coin however is that the offshore equity markets is currently priced at all time high levels with over-inflated price-earnings multiples which do not make the US, Europe, Japan, China, etc very attractive for moving investments off-shore right now (or at least not a big portion of one’s invest-able funds. Timing is just as important as the exchange rate. Personally I would rather wait for an international market correction or otherwise phase my funds in through means of monthly buy-in’s instead of a once-off lump-sum transfer, thereby buying at different buy-in price levels and at variant exchange rate levels instead of at once off fixed levels. Just an opinion.

Very valid comment France! Correct, while the ZAR is stronger it’s a great opportunity to add to one’s Rand-hedge or direct offshore investment.
May I add, the (valid) concern about global equity markets at all-time highs, maybe then one can instead look at more cash-based or conservative fund choices, or with some foreign real estate portfolio(?) Or just simply a foreign bank account holding cash, or money market, while global equity indices are high.

One things for sure, love him or hate him Magnus gets the tongues wagging.What irks me is lots of looking in the rear view mirror from M, but no windscreen. I like Simon Brown who before he does his stock picks for 2018, does a review of his 2017 stock picks, and gives himself a score. I suppose that we have to pay M 5% upfront for his. Wait sorry, Biotech, and the Vanguard opportunities fund that was closed in 2014.

On the Rand, my view is similar to commentators below it seems to be strengthening, and one can easily use the R1mil per year allowance to take advantage. There are operators that will assist and despite claiming to be free, seems like the best rate that you will get is a cost of around 1%. My view is that its easy to take out up to a mil, and even easier to send it back if you need it, so take advantage of the current Rand strength, and if you are fearful, just take out a bit.

On ETF equal weighted vs non. I held both CSEW40 and STXIND and switched out all to STXind, and obviously did well due to NPN and CFR. Now looking in the rearview mirror, do i switch to equal weighted or hold…Oh the crystal ball….

The fact remains that Naspers has been a fantastic performer to date. It may be time to sell some but not all. At the end of the day it is about risk and so far Naspers has been worth that risk.

All this tells me is if a political party could tap into the disfunction of the government to show how much potential goes to waste in this country, even JZ’s firepool would not contain the blaze.

I am non discretionary user of a local investment house with an investment platform to buy international ETF’s

I prefer to do my own research and investments but trying to find and understand SARS and foreign TAX implications on these investments is proving very tough and I refuse to get assigned a ‘wealth’ manager to assist who will the take a cut.

Could anyone pls point me in the direction of any tax practioners who could via a paid consultation provide guidance in terms of structuring offshore investments and the tax implications without them wanting to try and provide investment advice and product.

Much appreciated

Tax practitioners (mostly) do not deal with direct offshore investment advice…that’s were the (commission-based) brokers/fin.advisors come into the picture.

AFAIK, the tax issues with foreign investments are: that (i) interest earnings are fully taxable in your hands (as a SA resident, taxed on world-wide income), whereas if locally earned investment-interest receives R23,8K tax-free p.a. (ii) dividends are also taxable in SA. (iii) re foreign CGT gains….you should get the same R40K p.a. exemption….same as for local investments.

In summary, IF you declare your foreign investment income to SARS, you will be taxed on it. This leaves one with a (moral) dilemma: if you keep quiet, SARS may not come to know about it yet, but as years pass and IT-systems syncs up better with various global jurisdictions, with FACTA & CRS, even the more well known tax-havens (like Guernsey/Jersey; Isle of Man, Mauritius, Panama, Bermudas, etc) are already co-operating with various world governments’ tax authorities.

The only way to keep it away from SARS, is to invest in a little known tax-haven, in an obscure jurisdiction, who may be unwilling to co-operate with the western world. But so is the risk dealing with lesser known, obscure people hidden away…

My own research re the best structured product (to avoid hefty Inheritance tax within the UK or US jurisdictions) is to go for a local product house (e.g. Sanlam/Glacier, others) direct offshore investment, which is structured in an “insurance wrapper”. It takes care of most of the foreign estate complexities in case you die, without your beneficiary/family struggling to access your foreign capital).

Yes, there will be higher fees. Accept it. (…otherwise going direct, you’d then have to set up a foreign will to effectively deal with your foreign assets & appoint a foreign legal specialist dealing with your foreign estate, in case you die). That will erode your investment gains & so the larger capital, the better cost wise.

Some interesting and well-informed comments here, and generally everyone on the same page. My thoughts/actions:

1. My fully paid-up home and pension accounts for about 30% of my wealth. 2. So after Nenegate I decided I wanted the rest offshore. I initially did this via asset-swap at R13.70. Too bad – but I’ve never looked back. And given that when the rand was weak, my rand hedge stocks were strong, it was somewhat sixes and sevens.
3. I then decided that the risk that a time might come where one couldn’t get any money out of the country, meant I needed to externalise the funds properly, using the R10m annual allowances of both myself and my wife over 2 years.
4. I had to pay the CGT in cashing out of my asset swap portfolio into a properly externalised one because I had to withdraw the money from the family trust to utilise the allowances. Paying the CGT now was a big cost – although you pay it eventually the time value of money hurts!
5. Now that the investments are in our personal names we are exposed to much higher UK/US estate duty (at least only on the new base cost). SA Estate Duty is half what it is in the UK where the inclusion rate is 100%. I could have created a new offshore trust but UK trusts now have inter-generational triggers, so unless you have a very exotic and expensive offshore channel island structure, which is NOT without risk and future changes to legislation, it’s probably not worth it: I’d rather pay my taxes instead of worry about complex tax issues (and potentially massive penalties) one day.
6. As I get older I will start to shift money to my kids in a sensible way, including paying for holidays, grandchildren’s school fees, helping to buy houses or seeding investment properties. Depending on them (and their marriages!) will determine how this is best structured.
7. I have no regrets even with my not-perfect timing. Pointless looking back, and as I mentioned, much was hedged anyway. When the rand was at R7 to the dollar, my SA portfolio was half its eventual size.
8. Most importantly, I now have all my discretionary wealth offshore in global funds, my family and I have SA, British and Irish passports, we are privileged to have amongst the best schooling and (for now) tertiary education, the best private healthcare in the world, and I get to live (and ride my mountain bike) in the most beautiful place in the world (CPT). Great restaurants, vineyards, mountains, beaches, sunshine. Some (to some extent manageable) risk of crime, no terrorism, OK not much water but I’m off the grid, so hey…

what’s not to love?

Love it! Great comment, WTF 🙂

No worries about your less than perfect timing, as time moves along (with future ZAR depreciation) there will be a time in hindsight where you’ll be able to say “my timing was great after all”.

Note also, the fact that your foreign capital is offshore domiciled, it’s decoupled from SA sovereignty risk (i.e. where SA govt can bring in more draconian rules to force local asset managers to invest a larger portion in local economy or certain SOE’s)

West Cape water problem: a borehole may cost a pretty sum (…but what is the real cost of water when no one around you has any?) An interesting option is “atmospheric water generators” (google it)…the running cost is electricity. Perhaps would work more optimum in KZN’s humid environment.

Seems an expensive lesson to properly diversify while accumulating assets rather than afterwards. Thanks.

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