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Blue Chip Journal, Issue 77

  • Text
  • Advisor
  • Management
  • Equity
  • Finance
  • Planning
  • Advisors
  • Financial
  • Planners
  • Investments
  • Offshore
  • Wealth
  • Global
  • Funds
  • Portfolio
  • Retirement
  • Asset
  • Managers
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.

WEALTH MANAGEMENT Can

WEALTH MANAGEMENT Can South Africans REBUILD their WEALTH after LOCKDOWN? Coronavirus has left mass economic devastation in its wake Pre-pandemic, many investors had already externalised funds to mitigate the erosive impact of South Africa’s ailing economy, but what about those who are only now looking at investing offshore? Covid has had far-reaching effects so where do the clever opportunities lie for South Africans to rebuild their wealth post-lockdown? According to Andrew Ratcliffe, director at Private Client Holdings, a smart option for investors to build a diversified offshore portfolio is with actively managed certificates (AMCs), which have become increasingly popular for a number of reasons. “In the past, South Africans invested offshore through options such as feeder funds and asset swaps, as well as by utilising their offshore allowances, but there are now new-generation offshore investment opportunities available – such as AMCs – which offer a smart way to invest offshore and are a great building block for those looking for diversification in their portfolios,” says Ratcliffe. “AMCs, otherwise known as ‘inward listed notes’, have been around for some time but have only recently become popular, given South Africans’ appetite to explore alternatives in the current environment.” Ratcliffe advises that local investors can access and benefit from the performance of the global investment portfolio with an AMC (such as the PrivateClient Global Growth Portfolio) rather than a vanilla index tracking Exchange Traded Fund (ETF). “These portfolios aim to optimise risk-adjusted returns by diversifying across a number of asset classes, including equity, alternatives, listed property and fixed income. Private Client Holdings’ managed AMC is focused on generating Alpha while outperforming the indices and delivering a decent risk-adjusted return for our clients while not following conventional products. “AMCs give the investor the ability to access offshore companies and growth strategies without the need to expatriate funds for foreign investment purposes. This removes any reliance on JSE- Listed Exchange Traded Funds (ETFs) to gain offshore exposure through a local segregated investment account. In addition, an investor’s offshore allowance is not utilised as the AMC is a South African Rand-denominated inward-listed security, which makes it a tax-efficient vehicle where portfolio rebalances/reallocations do not create a taxable event.” According to Ratcliffe, unlike traditional passive financial instruments, AMCs are characterised by a discretionary, and therefore active, management of the underlying assets. The composition of the underlying assets changes over time based on decisions made over the life of the certificate by a third party (the portfolio manager). This does not trigger a capital gains tax event. “AMCs can also be constructed to be entirely bespoke, taking the strategy and preferences of the investor into account – perhaps they wish to focus on biotechnology or renewable energies, for example – while also being aware of the risks of high concentration of shares in any one sector. “New-generation offshore investment opportunities such as AMCs offer a smart way to invest offshore and are a great building block for those looking for diversification.” – Andrew Ratcliffe 18 www.bluechipdigital.co.za

WEALTH MANAGEMENT “AMCs combine the flexibility of structured products (favourable tax structure, low entry level, speed of issuance, and efficient cost structure) with those of classic investment funds (portfolio diversification and adaptability to different market conditions).” This kind of investment is suitable for investors who: • Own companies, trusts, and living annuities (as well as for individuals). • Are looking for exposure to a global growth portfolio but have either utilised their annual offshore allowance or have SARB approval issues. • Would like to replace the use of locally listed offshore passive ETF strategies with an actively managed equity instrument. • Can withstand some market and currency volatility in pursuit of enhanced dollar returns over the medium to long term. “All investors are taxed on Rand gains, but only when they sell the AMC in its entirety. There are no situs inheritance tax issues, so this is still tax effective from that point of view. AMCs are a great, well-priced investment vehicle for people who are close to retirement as they form a solid building block in one’s living annuity. They offer an easy bespoke way to diversify retirement funds,” says Ratcliffe. “The AMC has proved to be a sound strategy in the current Covid-19 bear market. Many South Africans are look- ing at alternative options out of fear for the current climate in South Africa – political turmoil, economic crisis, fraud and corruption, new restrictive regulations and concerns around prescribed assets have South Africans running scared. Over the past 100 years, South Africa has had one Andrew Ratcliffe, director of of the strongest-performing stock Private Client Holdings markets in the world; however, one needs a crystal ball to tell if it will be different this time and whether South Africa can survive the next hundred years. “Added to this, more South Africans are becoming part of the global village as they travel abroad more regularly or consider relocating overseas – AMCs offer a good alternative to get one’s investments offshore without following the conventional avenues. “Whatever your reasons, it is short-sighted to not look at diversifying offshore and AMCs offer an easy, bespoke, affordable and tax-efficient solution for the overseas diversification of investment funds,” says Ratcliffe. “The PrivateClient Global Growth Portfolio AMC has yielded great results for our clients and for those looking to diversify it makes absolute sense to consider this AMC.” PRIVATE CLIENT HOLDINGS Private Client Holdings was founded as a corporate tax consultancy in Cape Town, South Africa, in 1990. Since then the company has developed into a fullspectrum Asset and Wealth Management Company and multi-Family Office with six specialist divisions: Wealth Management, Portfolio Management, Financial Services, Fiduciary Services, Cash Management and Risk Management. Private Client Holdings are taking the lead in southern Africa when it comes to providing high-net-worth families with an all-inclusive wealth management solution and recently secured second position overall in the Top Wealth Manager: Boutiques in the Intellidex Top Private Banks & Wealth Managers Awards 2019. They also placed third in the Passive Lump-sum Investor Award and second in the Successful Entrepreneur Award. The award they are most proud of is placing second in the People’s Choice Award – an award based purely on feedback from a confidential client survey. Private Client Portfolios, the Portfolio Management arm of Private Client Holdings, has been awarded the title of “Best Investment Advisory Team – South Africa 2019” in the Capital Finance International Award – this London based CFI.co awards programme identifies individuals and organisations worldwide that truly add value through best practice within their industry. For further advice or information contact Andrew Ratcliffe on Andrew@privateclient.co.za or Private Client Holdings on (021) 671 1220 or visit www.privateclient.co.za www.bluechipdigital.co.za 19

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