Flexibility in 100% Offshore Investing in Living Annuities

South Africa’s financial landscape is evolving, striking the balance between regulation and investment flexibility. Macro-Prudential Limits and ETF Exemption in South Africa In South Africa, the SARB macro-prudential limits restrict financial institutions’ offshore exposure to a maximum of 45% of...

Tanya Naidoo

Tanya Naidoo

16 August 2024

Flexibility in 100% Offshore Investing in Living Annuities

South Africa’s financial landscape is evolving, striking the balance between regulation and investment flexibility.

Macro-Prudential Limits and ETF Exemption in South Africa

In South Africa, the SARB macro-prudential limits restrict financial institutions’ offshore exposure to a maximum of 45% of retail assets. This prudential limit should not be confused with the 45% limit in foreign investments under Reg. 28 of the Pension Funds Act. This regulation is designed to support minimum capital requirements, liquidity, and limit the type of risks which a financial institution may undertake. While the prudential limits exist to manage risk, the restriction causes financial services providers to be constrained in their offshore product range, as they are also bound by the 45% limit.

An avenue that can be used to mitigate this issue, is through the use of Exchange-Traded Funds (ETFs). In 2017 the SARB issued an Exchange Control Circular to exempt listed ETFs that invest in offshore assets from these macro-prudential limits. These “inward investments” exemptions apply to all foreign dual-listed securities on the JSE. The exemption allows these ETFs to be treated differently from non-listed offshore investments, effectively not counting towards the 45% offshore macro-prudential limit.

This exemption aims to provide financial services providers with more flexibility and the ability to diversify their portfolios globally, while still adhering to prudent investment practices. It allows them to include a broader range of global ETFs in their offerings, potentially enhancing returns and risk management for South African investors. To date we have seen some well-known non-listed unit trust providers transitioning into the ETF landscape, with the likes of Sygnia,  Prescient, 24Four, and now more recently, Coronation.

How to Obtain 100% Offshore Exposure in Living Annuities

Investors who are looking to obtain access to a 100% global investment in a Living Annuity, without being constrained by the offshore macro-prudential allowances of some providers, can consider the ETFSA LA Wealth Oyster Portfolio. The Oyster Portfolio provides full offshore exposure by purchasing offshore instruments through inward-listed ETFs on the JSE.

The Oyster portfolio is a multi-asset portfolio with a strategic asset allocation of 75% in growth assets and 25% in defensive assets. ETFSA delivers the investment strategy by holding ETFs benchmarking major global indices, including S&P 500, Eurostoxx50, Nasdaq, MSCI World and global Bond indices. The portfolio also has a small allocation to global themes such as healthcare and global property.

The Oyster Portfolio is strategically positioned to offer diversified exposure to prominent sectors such as Information Technology, Healthcare, and Financials, with a majority allocation towards the U.S. The current exposures illustrated below is as at 31 July 2024.

For investors who are considering a fully offshore-exposed portfolio, the Oyster portfolio can be used as a standalone investment strategy or can be combined with other balanced portfolios offered to ETFSA LA members. This approach enables investors to potentially enhance their portfolio resilience; and tap into sectors and regions that they may not have otherwise had, effectively resulting in potential higher returns.

The performance data presented herein is theoretical and has been constructed using back-testing methods of the ETFs selected for the Oyster portfolio. It does not represent recorded investment performance and is designed to simulate how the investment strategy would have performed in the past.

Should you require any further information on the Oyster Portfolio, please do not hesitate to contact us on 010 446 0374 or email lafunds@etfsa.co.za.

ABOUT ETFSA:

ETFSA is a dedicated provider of financial services and products, utilising purely exchange traded products in the investment solutions it offers.  These include managed bespoke investment portfolios for high-net-worth clients, both in South Africa and abroad, as well as offering low-cost retirement annuity, living annuity and other retirement products. Its Investor Hub is a state-of-the-art digital platform, giving access to all 200 plus JSE listed ETPs, for both discretionary and tax-free investment accounts.

The database service offered on the etfSA website, www.etfsa.co.za, chronicles the entire statistical history of the ETP industry, since it started in South Africa in 2000. This database is extensively used by investment professionals, retail investors and academics as the prime source of information on the South African ETP industry.

ETFSA is a registered FSP, with both CAT 1 and 2 licenses.  

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