unveiled
Sarah Bullen
It was fortuitously good timing for Gensec to launch its new investment in a week when the markets watched, white-knuckled, as the currency dipped to stomach-lurching lows.
Particularly as the unit trusts the company unveiled, ahead of a marketing blitz aimed at the rand-phobic South African investor, promise to take your money far away from any contact with the wobbly currency. The vehicle to erase rand- phobia offered by Gensec comes in the form of unit trusts based entirely in foreign currencies – five in dollars and one in euros.
Gensec Unit Trusts MD Anthony Ginsberg explains that, while existing offshore unit trusts offer South Africans accessible and convenient means to buy investments on foreign stock, bond and money markets, the investments remain in rands.
Buying a unit trust that is dollar-based means that your investment will be held in dollars and you will be paid in dollars when you sell the unit trusts you hold. Rands are kept totally out of the equation – unless you want to change your dollars back into rands when you sell the unit trusts. But now why would you want to do that?
Ginsberg explains that the unit trusts are “exchange-control proof”; meaning the money is usable overseas upon redemption and does not have to be repatriated to South Africa in rands before investing it offshore again.
It is really putting your money about as offshore as it can go and Gensec pressed home the point by advertising its product on a floating billboard anchored … offshore.
The dollar and euro-based investments also differ from rand-based offshore unit trusts in the limitations placed on them by exchange controls. Current exchange control regulation caps the asset-swap allocation for unit trusts at 20%, meaning offshore unit trusts periodically close for new investments as their limits are reached.
The dollar and euro-based investments bypass this. The money moved offshore is not taken off the management company’s asset allocation, but is taken off the R750E000 personal foreign exchange allowance individuals are granted. This means that an individual is allowed to buy a maximum of R750E000 worth and the funds will not be capped. For funds already offshore a minimum of $1E500 and no maximum limit exist.
Initially, the unit trusts are only accepting lump-sum investments, starting at R10E000.
Ginsberg is adamant that investing offshore is not just the best option, but the only option for South African investors wanting a hedge against the falling rand.
The rand’s vulnerability at the hands of foreign speculators, coupled with the lack of foreign direct investment into South Africa, gives the South African Reserve Bank little foreign currency reserves with which to defend the rand from such attacks, he said.
Ginsberg’s outlook on the rand is bleak, and he says that numerous United States economists see the rand moving down to R10 to the dollar within six years.
Of course other economists would disagree, estimating that the rand is currently 30% undervalued and is deserving of a better rating.
The dollar and euro-based funds Gensec is now selling to small investors have actually been around for some time, but only on sale to large institutional investors. Two of the dollar-based funds – the Global Balanced Fund and the Global Enhanced Equity Fund – have been open since 1996.
The Global Enhanced Equity Fund – which takes the MSCI World Index as its benchmark – has grown from $100E000 to $204E780 since its inception in 1996. Convert that back into rand at the relevant exchange rates and the investment has grown almost fourfold from R436E500 to R1,404-million over that period.
The European Growth Fund has seen growth of 42,9% since its inception in August 1999 and the Global Technology Fund 88,1% over the same period.
Of course it is not a case of out of sight, out of the tax loop, explains Ginsberg. As with any offshore investment, the unit trusts holders will be liable for tax on their income in South Africa. They will also be required to pay capital gains tax on the sale of the units. The offshore subsidiary is based in Dublin – a tax haven, which means that no double taxation will be levied.