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Retiring with a global portfolio - Tavis Cairns


22 Dec 2017

Retiring with a global portfolio 

By: Tavis Cairns, Senior Portfolio Manager, Sasfin Wealth

For those of us enough lucky enough to call South Africa home, a complex decision emerges around the structure and domicile of one’s savings. As a wealth manager, our belief is that one imperative is to obtain a global footprint for our hard earned after-tax rands in particular given the complexities and constraints of the local economy.

Context here can be derived from a global perspective- an investor saving for retirement in a developed economy should and would be unlikely to have all his or her eggs in the basket of the country in which they reside. Brexit for example, and its effect on the British pound taught many UK retirees a hard lesson in this space. For South Africans, what is critical is the role that exchange control plays, and the fluctuations in the value of the currency. Conventional wisdom is that investors should protect the value of the rand at almost any cost. History has proved though that at any cost can in fact end up being just that. For people that followed the rand move to just under 12 to the US dollar in December 2001 would have had to wait until 2015 to see those levels again!

A sober approach

So in this scenario, as in life, balance is key. The options for a global footprint faced by investors in this space are not binary, and shades of grey are to be obtained by a nimble and experienced portfolio manager to suit each client for best fit. Similarly where the required economy of scale is in place, all three of the following broad strategies could be employed.

The first is via a conventional JSE listed portfolio whereby the constituents do the heavy lifting. Dual-listed businesses and foreign earners, which are not only South African investors’ darlings, but compete in their respective industries with the best in the world. Think British American Tobacco, Naspers, Richemont, AB InBev, and BHP Billiton amongst others. These shares are owned in many cherished share portfolios no matter where they reside. This has an added benefit of being administratively and from a tax perspective, an obvious plus in an increasingly compliance and tax-driven world. The implicit criticism in this approach is that the playing field is relatively small, and it’s difficult or impossible to target other global businesses via the JSE in other sectors.

A second key mechanism to obtain the global footprint is via Exchange Traded Funds - (ETFs) traded on the JSE. Simply put these are shares that trade on the exchange that own the underlying constituents of the index it tracks, and are priced in rands. Here the investor’s universe is fast developing, and the array of choices is increasing almost monthly. The great news for local investors is that the healthy competition between providers in this space is driving down the costs. Domestically we have a way to go to compete with the global titans such as Vanguard and Blackrock which offer major index trackers at tracking margins or fees as low as 0.09% in more developed markets. In SA they currently price at between 0.8% and 0.35%. However South African investors now have the ability to own shares that track the performance of major indices around the globe in hard currency, at relatively competitive costs, and priced in rands. A key advantage here is that the income can be simply accrued and paid locally without having to constantly deal with the exchange control edifice and its red tape constraints, great for a retiree or investor wishing to keep the administrative burden to a minimum.

The third of the choices is to formally domicile the investor’s retirement savings offshore, by obtaining clearance either by annual discretionary allowance of R1 million, or by tax clearance and utilising the available Foreign Investment Allowance of R10 million per adult per calendar year. Using one of our partnered offshore administrators an astute Sasfin Portfolio manager can build a portfolio that is truly global in scope on a range of indexes across the globe. Think Apple shares in New York, Rolls Royce on the FTSE 100 in the UK and Unilever in Europe. It widens the playing field significantly in terms of the depth of opportunities and allows shareholder access to the truly global titans on an individual basis. As with all potential solutions there can be complications to this strategy, although this can be mitigated with carefully considered financial advice, and sensible tax and estate planning which could include the likes of an offshore trust or the use of an offshore insurance policy or endowment wrapper.

All in all for the ardent saver, or the aspiring retiree, a global footprint to your affairs is quite comprehensively obtained via the strategies outlined above, or by a hybrid of all of them tailor made to fit your needs. Speak to your portfolio manager should you have questions, as there is no one size fits all and we stand by ready to help you achieve your retirement goals.

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