Offshore ETF Portfolios

At Finmar Financial Services we developed a niche market in ETF investments because we could not find a reliable methodology for selecting an asset manager that could perform consistently. We have therefore developed our own unique system where we combine the best of the investment world with the best tax outcome in order to achieve optimal growth for our clients' portfolios.

ETFs trade like ordinary stocks and are therefore no longer just passive investments. There are currently more than 7,000 ETFs worldwide. Growth in exchange traded funds (ETFs) has increased exponentially over the past decade, but is still only 6% of the total market value of all exchanges. ETFs initially simply followed an index such as the Dow Jones (ie a fund that mimics the Dow Jones' 30 shares) or the S&P 500. In recent years, exciting new products have emerged such as ETFs for cyber security, cloud computing and many more. 

Where to invest

South Africa contributes less than 0.35% to world GDP. Therefore, there is no doubt at Finmar that it makes sense to invest outside South Africa. South Africa's economic and national risk reinforces this belief. The rand fluctuates a lot and although currently strong, mainly due to price growth in raw materials such as gold, iron ore, platinum, rhodium and the like, there currently is an excellent opportunity to diversify overseas. 

Wherein to invest

Traditionally (and still today) stock market investors mostly invest in unit trusts and direct stocks. There are thousands of funds all focusing on global equities. In South Africa alone there are about 360 of these funds. Research has shown that asset managers' chances of outperforming the market are less than 10% over periods of 10 to 15 years. The main reason for this is the availability of information that was previously only available to large fund managers at great cost. For an adviser or client, it is therefore an impossible task to make an informed decision.

Technology allows ETFs to be compiled for any sector or focus point at a fraction of the cost of unit trusts. This causes great disruption among asset managers who simply cannot compete on a cost basis and have largely lost their competitive advantage. The main advantages are excellent diversification, low cost and excellent performance. 

How to invest

The best way to invest in ETFs is directly overseas with the benefits of lower costs, better tax benefits and a wider choice to improve performance.

The 4 main options:

  • Investing in your own name directly overseas (due to cost and tax reasons we do not prefer the ETFs trading on the JSE)
  • Investing in your own name or SA trust with an asset swap transaction
  • Investing via a foreign trust structure with excellent income and estate duty benefits
  • Investing in a living annuity with an asset swap transaction through an overseas stockbroker

 

Please feel free to contact us for more information.