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Blue Chip Issue 78 - Jan 2021

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EDITOR'S NOTE Is offshore the way to go? As Florbela Yates, Momentum Investment Consulting, says on page 18, in an economy that is struggling to deliver economic growth and low returns from the majority of South African asset classes, an increasing number of South African investors are looking for opportunities offshore in a bid to maximise their investment returns. This edition of Blue Chip focuses on offshore investing, with a great collection of articles to make it easier to identify which portfolios are most suited for your clients for an appropriate blend of local and offshore assets. The comprehensive Old Mutual Wealth Offshore special feature on page 23 guides you through the complexities of investing offshore in today’s economic climate. The recent sharp reversal in both the rand and local shares questions the wisdom of having a binary view on local vs offshore, as well as highlighting the dangers of disconnecting an investor’s portfolio from the underlying investment objective it is trying to achieve says Ian Jones, Fundhouse. On page 20, he takes us through what it means to be invested offshore by looking at the actual opportunities we are investing in, and the new risks we are exposed to in the search for returns. Even though many South Africans are losing faith in the government, interestingly many clients have no intention of leaving, either because they cannot afford it or they realise this is a fantastic place to live. In Slowly unpacking financial emigration (page 43) Barry O’Mahony, Veritas Wealth Management, suggests that once you know your client has enough assets in South Africa you should slowly build up surplus savings in offshore assets over time. Given the economic backdrop in South Africa, it may well be prudent to move some of your assets overseas from a diversification point of view. On page 46, Ebeth van Heerden, Schroders, warns us that investors tend to chase performance in currencies as they do in stock markets, which can be a damaging strategy. She also cautions that the wrong time to invest offshore is when the rand is weak because one unit of foreign currency is going to cost more rands than it did before the currency weakened. Multiple studies have demonstrated that investors’ decision-making is dominated by their emotions and these emotions are usually counterproductive from the point of view of their investment returns (page 54). Often there is much emotion that underpins a choice, whether it be fear, desire or excitement. As a financial planner, you help clients make and implement key decisions about their life and money. Rob Macdonald, Fundhouse, tells us that there are usually three ingredients that go into making a decision: thought, choice and action, and that the role of the financial planner is to facilitate these (page 56). One financial planner who simplified thought, choice and action – hers and her clients – into a winning strategy in 2020 was Hester van der Merwe CFP®, who won the illustrious FPI Financial Planner of Year award last year. Meet her on page 8. May 2021 be a prosperous year for you. Alexis Knipe, Editor blue-chip-journal Blue Chip Journal – The official publication of FPI Blue Chip is a quarterly journal for the financial planning industry and is the official publication of the Financial Planning Institute of Southern Africa NPC (FPI), effective from the January 2020 edition. Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry. A total of 10 000 copies of the publication are distributed directly to every CERTIFIED FINANCIAL PLANNER® (CFP®) in the country, while the Blue Chip Digital e-newsletter reaches the full FPI membership base. FPI members are able to earn one non-verifiable Continuous Professional Development (CPD) hour per edition of the print journal (four per year) under the category of Professional Reading. Special advertising packages in Blue Chip are available to FPI Corporate Partners, FPI Recognised Education Providers and FPI Approved Professional Practices. ISSUE 78 | JAN 2021 Publisher: Chris Whales Editor: Alexis Knipe Online editor: Christoff Scholtz Designer: Simon Lewis Production: Aneeqah Solomon Ad sales: Sam Oliver Gavin van der Merwe Jeremy Petersen Bayanda Sikiti Venesia Fowler Vanessa Wallace Managing director: Clive During Administration & accounts: Charlene Steynberg Kathy Wootton Distribution and circulation manager: Edward MacDonald Printing: FA Print PUBLISHED BY Global Africa Network Media (Pty) Ltd Company Registration No: 2004/004982/07 Directors: Clive During, Chris Whales Physical address: 28 Main Road, Rondebosch 7700 Postal address: PO Box 292, Newlands 7701 Tel: +27 21 657 6200 Fax: +27 21 674 6943 Email: Website: No portion of this book may be reproduced without written consent of the copyright owner. The opinions expressed are not necessarily those of Blue Chip, nor the publisher, none of whom accept liability of any nature arising out of, or in connection with, the contents of this book. The publishers would like to express thanks to those who support this publication by their submission of articles and with their advertising. All rights reserved.

On the money Making waves this quarter Tax-free savings accounts or retirement annuities? A significant aspect of financial planning is finding a combination of products in the market that match your circumstances and needs, including tax efficiency, fund availability, value for money, cost structures, and access to funds. Two longer-term savings products in South Africa that could benefit you are retirement annuities and tax-free savings accounts. A retirement annuity (RA) is an investment product that allows you to make one-off and monthly contributions to bolster your retirement savings. RAs offer tax efficiency for both income tax and tax on investment returns. An RA works similar to a company pension fund. Benefits include: Income tax: Contributions to retirement annuities are taxdeductible, up to a limit of 27.5% of your income capped at R350 000 a year, which includes all contributions made across all your company retirement funds and retirement annuities. This benefit becomes more important the higher your current and future expected tax rates are. Tax-free returns: Any return earned within the retirement annuity is tax-free. Over the longer term, this will have a significant benefit to your savings. Access only after 55: For many people, having a nest egg without access is of great value as they may be tempted to pay in-themoment expenses if they have access, thus sacrificing the longterm goal. On retirement from your RA, you can take up to a third in cash after-tax: the first R500 000 lifetime allowance is tax-free and the rest is taxed on a sliding scale. The remaining money in the retirement annuity must provide you with a pension (income for life). This pension will then attract income tax. Tax-free savings accounts have grown in popularity since they were introduced in 2015. Government has provided a strong incentive within this product: tax-free returns. Over time, this has a significant benefit on your savings. There are limits to the amount you can contribute to a tax-free savings account every year and over your lifetime. These limits are at a reasonable level and cover most people’s needs. You benefit from the intended longer-term investment growth. • |Michael Kirkpatrick, head of individual consulting best practice, Alexander Forbes Environmental Social and Governance (ESG) integration into the investment process is one of the preeminent trends in the investment management industry. Aeon Investment Management, one of the leading advocates of ESG incorporation, chats with Blue Chip magazine. What does ESG mean to you? ESG is investing in companies with the awareness of factors, excluding financial metrics, that have a significant impact on the valuation of a stock. Investors should consider how their investments are helping to shape discussions, actions, and other future investments. Tinyiko Mabunda Research Analyst at Aeon Investment Management “Integrity is doing the right thing, even when no-one is watching.” – C.S. Lewis How do you integrate ESG into your current role? I research current and potential ESG issues affecting an industry and factor these risks by the application of an ESG risk premium to the valuation of a company that is currently being researched. What ESG trends do you think investors should be considering? There has been an increasing request for the disclosure of climate-related risks, and carbon emission reporting from companies that utilise fossil fuels. Yes, these are important issues; however, we should not forget the “S” in ESG. Greater focus needs to be placed on socio-economic factors such as the inequality gap and the gender pay gap in ensuring progress within ESG.

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