New ETF tax-free savings account launched

Story Highlights

• ETFSA Tax Free Savings Account
• NEW ETF TAX FREE INVESTMENT ACCOUNTS LAUNCHED

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Press Release

27 March 2015

A new tax free product, using only Exchange Traded Funds (ETFs) as the investment constituents, has been launched by Computershare (Pty) Ltd as the administrators, and etfSA.co.za as the portfolio managers and financial advisors.

The new tax free investment accounts fully comply with the new tax concessions, conditions and requirements announced in the Budget Speech last month and introduced from 1^st March 2015, under Section 12T of the Income Tax Act.

The ETF Tax Free Investment Accounts (ETFIA) are distinctive from other products in focusing purely on investment accounts and for using only ETFs in portfolio construction. The new tax free accounts will incur a maximum charge of 1% per annum for administration and portfolio management, making them a highly cost effective product in this competitive environment.

Mike Brown, Managing Director of etfSA.co.za states that “ETFs are ideal for the tax free schemes, as they pay a very high percentage of income received, through to clients as dividends or interest, so the tax free impact of reinvested income is maximised and also allow for capital growth strategies to be effectively pursued through a balanced portfolio of ETFs, focusing on a strategic asset allocation strategy. “

The ETF Investment Accounts will offer two distinct portfolio options, or the investor can choose a combination of the two options.

 

ETF TAX FREE INCOME ACCOUNT

 

 

 

 

 

 

 

Historic Investment Performance to Feb-2015
		1 Year (%)	2 Years (% p.a.)	3 Years (% p.a.)	5 Years (% p.a.)	Average (% p.a.)
ETF Income Account*		20,9%	9,1%	12,2%	12,4%	13,7%
SA Government Bond Index		15,2%	6,7%	9,3%	10,3%	10,4%
Money Market Index		6,1%	5,7%	5,6%	5,8%	5,8%
Source:	JSE/Profile Data (27/2/2015).
* Note:	This is the past performance of a portfolio of the selected ETFs, had tax-free legislation been in place since 2010. The same historic returns may not be achieved in future.

 

This is a low risk income bearing tax free account, with income growth rather than capital gains being the key objective. It gives a clear total return advantage to fixed income Government bonds or money market savings accounts on a historic investment return basis.

 

ETF TAX FREE EQUITY ACCOUNT

 

 

 

 

 

 

 

 

Historic Investment Performance to Feb-2015
		1 Year (%)	2 Years (% p.a.)	3 Years (% p.a.)	5 Years (% p.a.)	Average (% p.a.)
ETF Equity Account		31,4%	28,3%	28,3%	23,6%	27,9%
JSE All Share Index		16,8%	20,1%	19,9%	18,2%	18,8%
Source:	JSE/Profile Data (27/2/2015).
* Note:	This is the past performance of a portfolio of the selected ETFs, had tax-free legislation been in place since 2010. The same historic returns may not be achieved in future.

 

This is a higher risk portfolio with the intention of generating tax free capital growth over time. As can be seen the portfolio has generated a return of nearly 28% per annum over the past 5 years, based on historic investment performance, which, of course, might not necessarily be replicated in future.

Nerina Visser, director of etfSA.co.za, comments on the portfolio allocation as follows.

“We have focused on constructing ETF portfolios for clients with the following core objectives:

• Using multiple ETFs to give a balanced strategic asset allocation portfolio.
• Focussing on low volatility portfolios to generate long-term growth with limited standard deviation risk.
• Reducing the concentration risk of the portfolios, by limiting the allocation to any single share on an aggregated basis. For instance, in the equity tax free account, the maximum exposure to any single share is less than 4% of the total portfolio.
• Selecting only liquid, low cost ETFs for inclusion in portfolios.”

 

A major benefit of tax free investment accounts, relative to tax free savings accounts, is the potential they provide for long-term accumulation of capital, which can then be withdrawn on a tax free basis, as shown in the table below.

 

What Return Can I Expect?R30 000 p.a. investment to a maximum of R500 000
	1 Year	5 Years	17 Years
Cash (bank savings)	R31 740	R208 208	R899 796
SA Government Bonds	R33 120	R233 817	R1 413 647
ETFIA – Income Account	R34 110	R254 133	R1 979 479
JSE All Share Index	R35 640	R289 028	R3 375 777
ETFIA – Equity Account	R38 370	R363 169	R8 902 064
Based on the average return of the last five years to Feb-2015. The same return may not be achieved in future.

 

For more information on the ETF Tax Free Investment Accounts, please contact:

Nerina Visser	[email protected]	011 274 6173
Mike Brown	[email protected]	011 274 6171