Tuesday, December 18, 2012

It's New York, New York!

US trip diary
Day 2 continued
16 December

The British Airways flight from London to New York was uneventful. But travelling with three young kids proved to be challenging. Enhong our eldest son was well behaved, only to be reminded sometmes to take a break from constantly watching the in- flight entertainment. Enxuan our second son was also well behaved, but about 30 minutes prior to landing, he was waking up from a not so good sleep, fighting for precious seat space with his younger brother. He was crying, in tears, not wanting to be comforted. Our youngest Encheng was the most handful. When not sleeping, he was in good spirit, breaking up the in-flight headphone, tearing up the in-flight magazine, getting up and down the seat, picking up blankets and pillows from the floor, and playfully biting his family members. He was energetic and restless, occasionally I had to walk him around the cabin. The in-flight food was good. However, both Su-lan and I felt nauseous when the airplane was preparing for landing in new York. That feeling was not pleasant, we felt like throwing up.

Entering the US for foreign nationals requires completed a arrival and departure form for each traveller, as well as a customs declaration form for the family. I duly completed the forms at the start of my flight.

When landing in JFK, we found New York to be overcast and cold. Not cold by New Yorkers' standard, but cold by South African standard. Unlike other international airports. There were no airport personnel welcoming you at the terminal gate. We however did receive preferential treatment at customs as we were Travelling with a toddler. The baggage claim was a quick process. The airport charges 5 dollars for use per trolley, which was not nice. So like many other travelers, we pulled our own luggages.

A friend of mine in South Africa asks us to buy a pair of Ray Ban for him at the airport, so it was our first task in New York, besides getting A data sim for iPad. But at the arrivals hall there were only a couple of convenience shops; fancy, glamorous shops were nowhere to be seen. Realizing it was not the place to meet my friend's request, we proceeded to getting transport to our hotel in New York.

I did a lot of internet research prior to the trip, checking out various types of accommodation and mode of transport. The JFK airport offers the train, shuttle and taxi services. I found the taxi service to be very efficient and responsive. Out of the arrivals hall, I immediately spotted a number of yellow cabs. One of them caught my attention. It was a Ford mini-van, larger and taller than a normal sedan, perfect for transporting my family, a group of five with luggage. I went up to speaker to the driver, confirmed the fare to be 52 dollars as per my research on the web. My family then joined the queue for the taxis. When the mini-van taxi pulled up to the front of the queue, the 10 or so travelers in front of us in the queue were understanding and allowed our family to jump the queue to get the mini-van taxi.

Our taxi driver's name is Able. What a coincidence to meet a fellow African! He is Ghanaian, having emigrated to the US 12 years ago, now a US citizen, happily living and working in New York. He was a good communicator, acting as our tour guide, pointing out the various suburbs and landmarks along the way, the most interesting fact of which was the stadium for the baseball team Mets and the venue for the US Open tennis tournament. He is an aggressive driver, clearly understanding that time is money for his business, and he was wasting no time in getting us to our hotel Edison in Midtown Manhattan speedily. I admired his ability to drive closely behind vehicles on the highway. It did make me nervous, something I considered unsafe and reckless in South Africa. Anyway, we arrived at the hotel 12:00, more than two hours earlier than my plan.

Hotel Edison is excellently located in the famous Times Square vicinity. I found it in the popular travel websites Kayak and Expedia, thanks to my brother Peter now living in Houston and my long-time friend Liangyu Lin living in New Jersey. It is reasonably priced for a hotel near Times Square, has two queen beds in the room, sufficient for our young family. I was concerned about comments made by some reviewers about the noises from ongoing renovations and from the streets, but they put us in a room on the 3rd floor, in a quiet corner. So the room was quiet, only occasional police vehicles sirens pierced through the quiet.

The hotel room does not have coffee making facilities, which we consider an essential for a hotel in South Africa. Also it does not include complimentary breakfast, no free wi-fi either.

Spending some time in the hotel freshening up, we were out and about exploring Times Square. It was drizzling, cold and wet. We went into the familiar McDonald's in Times Square to have some snacks and free wi-fi. The interior walls are exquisitely decorated with paintings of New York landscapes, with a large model of buildings on the first floor.

One thing we have noticed is how warm it is indoor, whether in shops, hotels or restaurants, no matter what the outside temperature is. It must consume a lot of electricity to provide such heating. Also the temperature difference between indoor and outdoor takes a bit of adjusting to. Outdoor you put on a warm jacket, indoor it is so warm you have to take off your jacket, or you will find yourself sweating.

One comment made by our taxi driver is true, that New York never stops working as too many people depend on it. It is amazing how quickly New York recovers from the damages sustained during Superstorm Sandy. The tunnels are working, subway is working, electricity supply is very good, there is little sign of the effect of superstorm Sandy.

It is interesting how McDonalds offers some additional items for its US market that are not available in South Africa, like a rib burger. But the Big Mac is always there on the menu.

After McDonald's, Su-lan felt like an American hot dog, as we are in America. There is a hot dog stand right on the Times Square, with sign on it advertising as NYC's best hot dog. Attracted by the sign, we went up to buy a chili dog with cheese. It was pricey at USD 5.75. As a tourist you pay up. The hot dog was good, spicy, but I mean a hot dog is a hot dog ...

Then I let Su-lan do some shopping in AE (American Eagles Outfitters clothing store), while I took upon myself to take the three kids with me, walking around some blocks near the hotel. There are lots of shops, restaurants and theatres in Times Square, one can get great entertainment or retail therapy. The district reminds me of the Xinyi District in eastern Taipei, also full of shopping and things to do.

Getting back to the hotel just after 4:30, my primary school friend Liangyou Lin also arrived as agreed. Liangyou is known as Leon, we had gone to the same primary school and junior high school in Taiwan, namely Zaixing再興in Taipei. We lived in nearby suburbs, and we have been friends since childhood. The last time I saw him was in my university years. After junior high school I emigrated with my family to South Africa in 1989. After military service he went on to do postgraduate studies in New York, since has lived and worked in the US. He now lives in New Jersey, working for a telecommunications company. Prior to this trip I have been communicating with him via email and Skype, he has been great help, offering me travel tips, where to book for lowest rates, and arranging for great calling plans for Su-lan and my cell phones, so we can keep in touch while in US. He even did some shopping for us prior to our arrival. I really appreciate his kind assistance, for making us feeling welcome in our first stop in the US. There is nothing like having a friend when you travel to a foreign country. I have been looking forward to seeing him and his family.

Both of us have aged a little. He looks in good shape, has not changed much from school days. I was introduced to his wife and son Grant, who were already in our room, his wife chatting to Su-lan. We exchanged gifts, discussed about the plan for the evening. As kids would love to visit the huge Lego store at Rockefeller Center, and the Lego store would close at 7pm on a Sunday, we decided to first visit the Lego store.

In New York, a lot of people get around by walking. There are a lot of people everywhere, and a lot of people walking. Many of them are local residents, many are Americans from other parts of the US visiting NY as tourists, and also many foreign tourists. We have been warned of pocket pickers, but we felt pretty safe in New York. There is high level of police presence. Just about every street corner is one or two policemen.

We walked from our hotel on the 47th Street to the Rockefeller plaza on the 50th Street. There is simplicity in their street names, I think it's great for first-time visitors navigating the city. On our way we saw familiar American brand names such as Chase, Christies and publisher McGraw-Hill.

Rockefeller Plaza is a huge attraction for locals and tourists. It boasts of a giant beautifully lit Christmas tree, an ice rink, and some speciality stores. It was jam packed with people on this Sunday evening, with festive buzz in the air. I note a lot of Chinese faces in the crowd.

After struggling trough the crowd, we were eventually admitted to the Lego store. It is full of ... yes you have guessed it, Legos! of all colour, sizes and shapes. It's like a big playground for kids. My wife bought a Lego star trek keyring with LED light for my second son Enxuan. He is unique in that he has this fascination with keyrings, he likes collecting keyrings and playing with them.

By this time the great amount of air travel we took the previous day started to affect the kids, who have been excited with the trip. Liangyu gave me directions to Wu Liang Ye, an authentic Chinese restaurant he has booked for dinner. His family would catch up with us later. This restaurant is on the 48th Street, just a couple of blocks from Rockefeller plaza. But bewildered by the crowd, walking in the light rain, feeling exhausted and being first-time visitor to this big city, I was disoriented. Pushing Encheng in the stroller, I just wanted to get to the destination as soon as possible, to be in a place of rest. I ignored my son Enhong's indication from Maps on my iPhone that we were heading in the wrong direction, and what could be a three-minute walk turned out to be a 20-minute detour. It felt like a long walk. I should have remained in the company of Liangyu and walked together to the restaurant.

By the time we got to the restaurant, we were wet, tired, exhausted. Liangyu's wife already ordered chow-fan for the table. Some lovely dishes were ordered and quickly served to our table. The food was great, but the kids in their tired state were not in mood to enjoy the food. After having some food, Enhong was the first one gone, with us face burying in his arms sleeping on the table. Then Enxuan followed, lying sleeping on two chairs. I would love to chat to chat more to Liangyu, but I also was not in the best frame of mind for conversations. And I had to think of how to get the sleeping kids back to the hotel.

Anyway, it was good to know that Liangyu and his wife are doing well in their respective jobs, and they are happy living in the US.

After the dinner, the great mission of returning to the hotel began. We had to wake up the two sleeping kids, who were not happy at all. Liangyu and his family walked us to the hotel in the light rain. My job was to get Enhong walk back to the hotel. He is 40 kg in weight, and I would not be able to just put him on my back and walk. He was tired, sleepy and unhappy, tears coming down his cheeks. I had to assist him walking forward, putting my arms around him, comforting him. He slipped once.

I was so glad and relieved when we got back to our hotel room. After escorting Liangyu to hotel lobby, saying thank-you and goodbye to Liangyu, I returned to our hotel room, lying in bed, exhausted, not having any energy left. I did sleep relatively well, only to wake up at 1am in the morning due to jet lag.

I guess this is how it would be, when you visit a big country and a big city for the first time, you would want to pack as much as possible into each day, making the best of the trip.

Almost missing our connecting flight to New York

US trip diary
Day 2
16 Dec 2012

Phew! It was close, we almost missed our connecting flight.

Our British Airways airplane was doing some aeronautical graffiti in the London sky, much like a bee circling over London a few times before it finally landed in the busy Heathrow airport. We arrived 7:30 London time, about an hour late relative to the scheduled arrival time. This puts some pressure on catching our connecting flight to New York, scheduled to depart 8:30am.

We patiently waited all passengers to disembark the aircraft before we were handed our youngest son Encheng's stroller. This stroller is essential when you travel with young children, especially useful when you have to rush to catch a flight ... You'll understand what I mean later.

Marching the troop of boys to the next point, I was looking through the airport window to immerse myself with the early morning moment of London. The sky was overcast, typical of general impressions of London. And London was just waking up to a new day, at the beginning of dawn. Forgot to mention London is much colder than Joburg at this time of the year, at 6 degrees Celsius. You felt the cold in the air.

I pushed the stroller with my youngest son into the lift, while the rest of my family used the escalator to get to the lower level for the connecting flight. While in the lift, I mentioned to the fellow passengers I didn't have much time to catch the connecting flight. A British Airways worker informed me that I was going the right direction, and after the security check I would be at B Gates. That gave me a bit of comfort.

What followed was not comforting at all. I have been to some countries around the world, such as Hong Kong, Singapore, Taiwan, and UK many years years before, but none of the security checks compared to this one in stringency. While queuing to go through the security check point, we were informed to remove our jackets, electronic items, liquids, creams, and belts. We took out all the water and juice bottles in our bags, drink them or leave them on a tabletop. We think we did all the necessary, but still two hand luggages were kept behind for inspection. The security check was thorough and relentless, not to mention time consuming. Time was ticking away, and the gate to our connecting flight would be closing on us. I was getting more anxious. I approached the security personnel and informed her we would be missing our connecting flight. She looked at me and told me to step aside :-(

No matter, we had to wait for our turn for our baggages to be inspected. Then, all items were taken out of the baggage one by one, they found a tomato juice can in my second son Enxuan's backpack! That was the culprit that held us back.

We quickly re-packed everything into the backpack, and rushed to Gate 39. At that time we were already way pass the closing time, and looking at a British Airways aircraft taking off, I couldn't help but thinking that could be our flight bye-bye. I was starting to think about catching the next flight to New York, and how the start of our holiday plan is ruined because of the stupid security check ...

With a glimmer of hope, we used the escalator to get to the next higher level and searched for Gate 39. We found it and saw some BA staff standing at the check-in point. I ran as fast as I could with Encheng in the stroller, with the rest of my family not far behind. It was such relief to hear a staff member tell me, " you are OK, we are expecting you." it's like a pair competing for the reality show The Amazing Race, reached the final destination in a leg and was told safe to go to the next race!

At the end, I was just grateful for BA wait on us, as the last five passengers to join flight BA117, to JFK New York.

A tip when you travel internationally: don't have any sharp objects in your hand luggage, no liquids, as they can cause you delays at security check points. Also if you are to go through a security check point at the London Heathrow airport, take out all items as instructed before scanning, or you may end up spending another half an hour. Don't keep the unfinished juices or waters from the previous flight in your hand luggage. My family has learnt it the hard way.

Monday, December 17, 2012

My first US trip - day 1

US trip diary
Day 1
15 dec 2012

Right now my youngest son Encheng is sleeping on my lap, in a British Airways airplane on route to London. I just had my late supper in flight.

Today has been a long waiting day. With the flight taking place in late night, we had the whole day in preparation. The kids spent most of the day watching TV, Su-lan went out shopping for a replacement hand luggage, and I searching on the Internet, updating our trip on tripit and making further arrangements to our family's first ever US trip.

I must say TripIt is a great app for setting up and updating a long trip in the US. You just make booking for hotels, theme parks, airlines, submit the confirmation emails to Tripit, and voila! Your trip has been accurately updated with little effort. I am amazed at how well this app works, it really helps with holiday planning.

Thanks to my brother-in-law Kevin, we were transported to the airport amid pouring rain. The check-in process was relatively smooth. After the customs, we went to the Bidvest premier Lounge thanks to Investec. My FNB Platinum credit card is less useful than the Invest Credit card in this instance. The Bidvest airport lounge was a good experience, allowing our family to enjoy some snacks and drinks, watching the latest soccer match on TV, just having some time to relax before the flight.

Having a toddler or a baby is always an advantage when boarding a flight, as you are given priority. Mmm, maybe I should have another baby ..., but maybe not, as Su-lan protests at how our three energetic boys are already stretching us and testing our limits.

This is the first time we fly with British Airways, and the initial experience was not up to expectation. First, there was an hour delay due to the public address system not working, and the flight attendants had to conduct the safety demonstrations using a loud speaker, to about six rows of passengers at a time. The cabin was rather warm before the airplane took off. Then once in flight, I discovered the toilet did not have water to wash my hands. Soon after a senior air host announced 5 of the toilets were unserviceable due to problems with water supply, reducing to two toilets servicing 250 people in the economy class. He apologized and made the toilets in the business class available to economy class passengers.

The service attitude of the flight attendants made up for the technical problems of the aircraft. They were helpful, attentive and friendly. They tried to make the best of the situation.

I hope we will still be in time to catch our cnnecting flight to New York when we land in the London Heathrow airport. Now is time to get some sleep.

Kevin, writing in seat 31D, 12:55am midnight

Sunday, October 28, 2012

Using a local endowment to invest offshore

by Laura du Preez         

Investing directly in offshore unit trust funds denominated in a foreign currency has, at present, two distinct disadvantages over using rand-denominated foreign funds: you may incur tax that you would not pay on local investments and you create an offshore estate that may cause problems for your family after your death.
Life assurance or endowment policies issued by a South African life assurer with an offshore branch enable you to invest in foreign currency offshore unit trusts without these problems, local asset manager Marriott says.
Unit-linked offshore endowment policies have become popular, because they do not create an offshore estate and have enabled you to avoid the tax problems associated with investing offshore, although this advantage may become less of an issue in future if proposed tax law changes are approved. Currently, the tax advantage is that the local assurer is registered for tax in South Africa and can pay tax on your behalf if you invest in an endowment policy, Simon Pearse, the chief executive of Marriott, says.
Cobus Kruger, the head of product and investment at Glacier International, a division of Glacier in the Sanlam group, says local life assurers Sanlam, Old Mutual and Momentum are the biggest providers of offshore endowments from a foreign branch.
Momentum’s offshore policies are issued through RMB International from Guernsey.
Old Mutual’s offshore branch is in Guernsey but will soon relocate to the Isle of Man. It operates in South Africa under the name of Old Mutual International. Its policies enable you to access funds through offshore life assurance company Skandia International.
Glacier International offers offshore policies from its Bermuda office.
Kruger says other players include Discovery Life, Absa Life, Hollard, Investec Global and Sygnia.
Pearse says investors who use their R4-million offshore allowance to invest directly offshore typically invest in offshore unit trust funds that are registered with the Financial Services Board (FSB) in terms of the Collective Investment Schemes Control Act (Cisca) as funds that can be marketed to South Africans. These funds are domiciled offshore and are denominated in foreign currencies.
In order to be registered with the FSB, offshore funds must comply with Cisca and its regulations, and this requirement has to some extent limited the range of FSB-registered funds on offer to South African investors.
As an investor, you are free to invest in any offshore fund. But if you invest in an FSB-registered fund, you can take some comfort that the company with which you are investing is represented in South Africa and adheres to the same investment rules as do local funds. However, the local rules are out of step with those in other well-regulated parts of the world, particularly those for funds registered in European Union countries, and some funds registered there are unable to register here.
Local life assurers that offer offshore endowment policies can offer underlying investments in FSB-registered foreign-domiciled unit trust funds, as well as funds that are not registered with the FSB.
Kruger says life assurers are regulated by the Long Term Insurance Act rather than Cisca. Long-term insurers, as institutional investors, can create investment products. When it comes to international markets, this typically requires enhanced due diligence by the assurer, he says.
You must obtain clearance from the South African Revenue Service (SARS) before you may invest in any offshore funds directly (whether FSB-approved or not) or through an offshore endowment policy.
In the case of an offshore endowment policy, your investment is paid to the offshore office of the local life assurer in the relevant foreign currency and it is then invested in the underlying foreign unit trusts.
The big three providers of offshore endowments offer the funds from a range of companies and not only the funds of their associated asset managers.
Although the endowment policy may add a layer of costs, a big advantage is that you do not create an offshore estate. A second benefit of using these policies is their tax advantages, but this may become less of an issue with tax law amendments due to become effective next year.
Tax advantage
As a South African resident, you pay tax on the income you earn and the capital gains you make anywhere in the world. This means that you have to declare and pay tax on dividends earned from overseas shares and on interest income earned in an offshore fund. You also have to pay tax on any capital gains you have made on your investment when you cash it in.
Currently, dividends and interest are taxed differently, depending on whether it is of local or foreign origin. While dividends earned from local shares are tax-free and interest earned locally is exempt up to R22 800 a year (in the 2010/11 tax year), or R33 000 a year for investors over the age of 65, both foreign interest and dividends are taxable, and you can use only R3 700 of your annual interest exemption against your foreign dividends and interest.
If you invest in an offshore endowment policy offered by a local life assurer that is registered for tax in South Africa, the assurer pays tax on your behalf and the proceeds are tax-free in your hands.
Life assurers pay tax at 30 percent on all the foreign dividends and interest income in the policy. Any capital gains made in the policy are taxed at 7.5 percent.
This is a favourable rate if you have exhausted your annual interest exemption and your marginal tax rate is higher than 30 percent, because you would then be paying tax at a higher rate on the interest income earned and your capital gains tax (CGT) rate would be higher than 7.5 percent. Your CGT rate is a quarter of your marginal tax rate, because CGT is levied on only 25 percent of the taxable capital gain.
Legislation has been introduced to change secondary tax on companies, currently paid by local companies on dividends declared at a rate of 10 percent, into a dividends tax paid by shareholders (but withheld by companies from dividends paid) at the same rate. National Treasury expects that dividends tax will be effective from April next year.
In June this year, the treasury published draft legislation to introduce parity between the tax treatment of local and foreign dividends. The draft amendments propose that from next year only a quarter of your foreign dividends be included in your taxable income – so taxed at a maximum effective rate of 10 percent for those on the top marginal tax rate of 40 percent, but less for those on lower rates – and the R3 700 exemption will no longer apply.
A formula for companies, including life companies, has been proposed that will result in a similar effective tax rate (10 percent) for foreign dividends earned by companies or life assurers. If approved, the tax advantage on the dividends earned when using an endowment to invest in foreign funds will fall away, but the CGT advantage remains.
Investors in foreign funds who are liable for tax in the country in which their funds are registered will continue to be able to offset tax paid in that country against what is owed here where there are double taxation agreements between this country and the countries in which funds are domiciled.
Pearse says that to avoid tax on foreign dividends and interest, South Africans are often offered offshore roll-up funds, which do not declare any taxable income but use any interest earned to issue you with new units. However, these investments incur CGT when the units are realised.
He says SARS has some concerns about roll-up funds and may ask you to declare the income earned and the capital gains made. If you are unable to do so (because the fund was a roll-up one and does not report the income as income), the entire growth in the investment may be taxed as income, he says.
While offshore endowment policies offered by local life assurers registered for tax in South Africa have at least a five-year term, partial surrenders of the policy are allowed. These will incur CGT paid on your behalf by the assurer, Pearse says, and are limited by the Long Term Insurance Act to the original premium plus five percent a year during the initial five-year term of the policy.
Only one withdrawal or one loan is allowed against the policy in the first five years, Kruger says. Thereafter, withdrawals are unrestricted, but the policies may stipulate a minimum withdrawal amount.
No offshore estate
The second major advantage of using an offshore endowment policy is that it can overcome the problems that often arise after your death when you have an offshore estate. These problems occur because many overseas jurisdictions do not recognise your South African will, Pearse says.
In terms of probate, which is the legal process that takes place after you die, your will must be proved to be valid, your property must be identified and appraised, your outstanding debts and taxes must be paid, and your property must be distributed according to your will or state law, he says.
If your South African will is not recognised in an overseas jurisdiction, your heirs may have a problem with distributing your offshore investments.
Many South Africans with offshore investments go to the trouble of having an offshore will drawn up, but the consequence is that your estate will need an offshore executor - and that will make things far more complicated after your death, Pearse says.
Kruger says that in Guernsey and Jersey you cannot wind up an estate until you have followed certain procedures. You have to apply for probate using an advocate of the High Court, he says.
Both Kruger and Pearse say that offshore life wrappers from local assurers can be used to obviate the problems that otherwise arise with offshore assets, because the proceeds of the policy will be paid out to the beneficiary or beneficiaries you name in the policy or into your local estate.
Pearse says that, according to legal opinion obtained by Marriott, you can nominate an offshore beneficiary and have the policy proceeds paid to that beneficiary in a foreign currency.
Marriott's lawyers are of the view that, as long as you comply with South Africa's exchange control regulations when you take out a policy invested in foreign markets, you or your estate will not be obliged to repatriate the proceeds of the policy either when the policy matures or on your death. The proceeds can be paid in any currency or country and to any person agreed on by you and the life assurer, Pearse says.
Navin Ramparsad, the head of legal at Momentum Wealth, says that if you do not nominate a beneficiary, the policy proceeds will be paid into your estate and your estate will need a grant of probate.
He says this does not equate to the creation of an offshore estate. “It is simply a process in terms of which the South African executor appointment and process is validated by the offshore jurisdiction. Once the grant of probate is obtained, the proceeds are paid into the local estate,” he says.
Other benefits
Momentum points out that if you nominate a beneficiary, the proceeds of the policy will be paid directly to that beneficiary and your estate will avoid paying executor’s fees on the proceeds.
Kruger says another benefit of an offshore endowment policy is that it usually allows you to make cost-effective switches between the underlying unit trust funds – in effect, this is a similar benefit to the one you derive by using a linked-investment services provider. Providers appear to offer either all switches at no charge or four free switches a year. There may be minimum amounts that must be switched.
Another advantage is that you receive consolidated reports that will enable you to know the value of your offshore funds without having to check the individual fund statements, Kruger says.
Momentum says investors can choose the reporting currency for its offshore policies.
The assets in your policy will typically be held by an offshore custodian.
Kruger says that following the recent global financial crisis, most financial services companies are using custodians to hold their clients’ assets. In terms of Guernsey law, for example, a life company must hold 90 percent of its clients’ assets with an independent third party. Sanlam has decided to hold 100 percent of its assets with a custodian, he says.
Estate duty advantage
If you nominate a beneficiary and stipulate that the proceeds are to be paid outside of South Africa, the policy will not be classified as a domestic one for estate duty purposes and will therefore be excluded from your estate, Pearse says. This could save your heirs paying estate duty of 20 percent on the proceeds of the policy, he says.
In effect, Pearse says, the offshore policy achieves the benefits of an offshore trust without the cost of that structure.
But Kruger and Ramparsad disagree with Pearse, as do Tiny Carroll, Glacier’s estate planning expert, and Wayne Sorour, the head of sales for Old Mutual International.
Carroll says an endowment is property you own directly that should be included in your estate, because the Estate Duty Act defines property as any right in or to property, movable or immovable, corporeal or incorporeal (not composed of matter).
The Estate Duty Act distinguishes between a domestic and a foreign policy only in the case of deemed assets, Carroll says.
Deemed assets are those that you do not own directly but which can be included in your estate for estate duty purposes. Examples of deemed property are: the proceeds of certain domestic policies; property donated by the deceased that was exempt from donations tax; property controlled by the deceased before his or her death; and claims in terms of the Matrimonial Property Act.
In Old Mutual’s opinion the assets in the policy are property in your estate from day one and will therefore attract estate duty, Sorour says.
Ramparsad says that Momentum is also of the view that even if the proceeds are paid to an offshore resident, the policy is property in your estate.
If the proceeds of the policy are paid in South Africa, he says, the policy will be regarded as a domestic one. There is some debate over whether the endowment policy should be treated as property or deemed property, Ramparsad says.
What does it cost?
Remember that the offshore endowment policy will result in your paying fees in addition to those charged on the underlying funds.
You may have to pay an initial fee to the offshore branch of the local life assurer, to your financial adviser and on the underlying unit trust funds.
You will pay an annual fee to the life assurer, the asset manager, the trustee and the custodian.
You may have to pay an annual fee to your financial adviser.
Most unit trust companies no longer charge an initial fee. Their ongoing management fees are usually between one and three percent, and they may also charge a performance fee (all the fees quoted in this article exclude VAT).
Discovery Invest’s offshore endowment policy, for example, has an annual fee of 0.5 percent for the life assurer and between 0.35 and 0.5 percent for the trustee or custodian, depending on the size of your investment. Discovery gives its life policyholders an additional 10 percent allocation upfront, which it says offsets these fees.
Discovery Invest says the financial adviser fees can be up to four percent initial and 1.5 percent ongoing.
The offshore endowment policies issued by Glacier International have an ongoing administration fee that depends on the value of the policy. The financial adviser fees are up to three percent initial and one percent ongoing.
Momentum charges no initial administration fee but has an ongoing administration fee of one percent.
Financial advisers can charge an initial fee of between zero and four percent and an ongoing fee of up to 1.5 percent on Momentum policies, with the total financial adviser fee not exceeding 7.5 percent over the first five years of the policy term.
Old Mutual’s Life Account, the policy issued by Old Mutual International, has a tiered annual contract fee, with rates from 0.9 to 0.3 percent applying to the accumulated value of your underlying investments in bands. For example, the 0.9 percent rate applies to the amount up to £30 000 and the 0.55 percent to the amount between £30 000 and £100 000.
Old Mutual spreads the adviser’s initial fee over three years. A portion of the fee accumulates each month against your investment, and one percent of the three-percent fee is deducted each year for the first three years of the contract. This means that most of your initial investment is allocated to the underlying funds, and the amount allocated does not start off minus the initial fee, Sorour says.
However, if you withdraw funds from your policy, the outstanding initial fee will still be recouped, and different formulae are used to determine the applicable fees in these cases.
There may also be charges for switching the underlying funds. Old Mutual International and Momentum do not charge for any switches, while Glacier International and Discovery Invest do not charge for the first four switches (each of which allow multiple switches to rebalance your portfolio) in a year. After the first four switches, Discovery charges 0.25 percent of the switched amount.
After the first four switch forms, Glacier has the right to charge US$50, €50 or £50 per switch.
Investment choice
All the providers that personal finance canvassed have what is known as open architecture and offer not only their own funds but funds from other asset management houses as well.
Old Mutual International offers access to about 140 funds, including managed funds from Skandia Investment Group, funds chosen by Skandia on a best-of-breed basis and funds in a range selected by Old Mutual International including Ashburton, Jupiter, Blackrock, Investec, Coronation, HSBC and Templeton, Sorour says. There is only one Old Mutual fund, Old Mutual Japanese Select, he says.
The global equity fund on the Old Mutual International platform is a JP Morgan fund, while the European equity fund is an Invesco one, he says.
The fund list extends to funds that are not registered with the FSB for marketing in South Africa, but Sorour says that all the funds on Old Mutual International’s platform are traded daily and are liquid. There are no hedge funds in the offering.
Discovery Invest offers both FSB-registered and non-registered funds. Its list of funds extends to BlackRock, PNB Paribas, Deutsche Bank, Goldman Sachs, Franklin Templeton, Credit Suisse and Fidelity.
Momentum offers a choice of 1 380 funds from both local and offshore providers, FSB-registered and not, through RMB Investment Services. Of these 1 380 funds, six are RMB Investment Services funds.
The external fund managers on the RMB Investment Services platform include: Ashburton, Aurum, BNY Mellon, Investec, JP Morgan, Sarasin, Stenham, Aviva, Barclays, BJM, Blackrock, CAM, Castlestone, Coronation, Fidelity, Franklin Templeton, Goldman Sachs, Harmony and HSBC.
Sanlam’s Glacier International offers a choice of more than 300 underlying funds on its offshore endowment policy.
These funds include SIM’s Dublin-based funds, as well as funds – those that are FSB-registered and those that are not – from 30 other asset managers, including Ashburton, Alliance Bernstein, Aviva, BlackRock, Coronation, Franklin Templeton, Investec, JP Morgan, Nedgroup, Pimco, Pictet and Sarasin.
Glacier investors can also invest in a share portfolio through Pictet, a Swiss private bank.
Investment minimums
There may be minimum investment amounts, some of which are quite high. For example, Momentum’s minimum is US$25 000 or the equivalent in euros or pounds. Discovery Invest, as a newer entrant to the market, accepts more manageable minimums of R100 000, US$10 000, £7 500, €10 000 and ¥1 million.
Sanlam’s Glacier policies accept €25 000, US$25 000 or £25 000. Old Mutual’s minimums are £20 000, US$30 000 and €30 000.
Additional investments may also have to meet certain minimum amounts.
Foreign assurers
Don’t confuse offshore endowments from foreign branches of local assurers with those offered by foreign life assurers not registered with SARS for tax, as the taxation of these policies differs from that of offshore endowment policies offered by local assurers.
In fact, the taxation of policies issued by foreign assurers is something of a grey area. Last year, SARS issued an advance tax ruling stating that it would not tax the income or dividends earned within the policy but only the capital gains made when the policy matured. But Kruger says that this ruling has been withdrawn and that a new one will apparently be issued.
Harry Joffe, Discovery Life’s senior legal adviser, says he is aware that a tax practitioner has obtained an advance tax ruling from SARS that will overturn the one issued last year. In terms of this yet-to-be-published ruling, investors will have to declare the income and dividends earned within the policy each year and the capital gains will be taxed when the policy matures, he says.
Kruger says an advance tax ruling provides an insight into SARS's thinking, but it is not law, and tax law currently does not deal with offshore policies issued by foreign life assurers. His view is that SARS will ask you to prove what income and capital gains you have earned from your investment each tax year.
In addition, be wary of foreign assurers operating illegally without offices in South Africa and be aware that some local investors have had bad experiences with investments in endowment policies offered by offshore life assurers. For example, some investors who were exposed to certain funds via Skandia’s endowment policies in 2000 found themselves the victims of fraud when one of the underlying funds went belly-up.
Sorour says the fund in question was put on the platform at the request of clients, and it was accessed by investors on an execution-only mandate – that is, without due diligence by the life assurance company.
Funds available on the Skandia platform now have been subject to a due diligence, but the life assurer is not responsible for the performance of the fund.
This article was first published in the third-quarter 2011 edition of Personal Finance magazine.

Monday, October 15, 2012

RMB Holdings announces increased earnings

RMB Holdings announces results for the year ended 30 June 2012, as follows:

Normalised earnings up 23% to 296.5 cents
Dividend up 24% to 125.5 cents
Intrinsic value up 34% to 3477 cents

RMB has been a stellar company, performing year in year out.It now has interests in FNB, RMB and Wesbank.It is a long-term hold, it is fairly valued at the current price of R36.

RMI announces excellent results

Last Friday RMI announces its annual results for the year ended June 2012:

Normalised up 21% to 159.5 cents
special dividend of 55 cents
Ordinary dividend up 42% to 80 cents
Intrisic value up 30% to 1,714 cents

RMI has interests in some of the leading South African insurers: Discovery, MMI (Momentum and Metropolitan), and Outsurance. While it is a long-term hold, the current price of R21.75 is not cheap.

Sunday, October 14, 2012

Unit trust investing cycle turns

Studies show that various asset classes perform best at different times, and these tend to go in cycles: Mining shares may be dogs now, especially given all the strike actions and drop in outputs. But sometime the cycle will turn, and mining shares will recover. On the other hand, retailers are trading in orbits, with PE multiples north of 20. At some point in time they will fall and revert to the mean.

The same applies to unit trust investing. I have kept a copy of the 25 April 2009 Saturday Star Personal Finance. It was at the height of the effect of the 2008 financial crisis. Recently I read with interest that, at that time, the worst performing unit trust sectors over three years were foreign equity, domestic equity small companies and domestic equity financial. Now three years later, these sectors have become probably some of the best performing unit trusts over last 12 months.

This illustrates one point: Don't invest by looking at the rear view mirror. Also the worst performing sectors may become the best performing sectors in the fullness of time. Similarly, today's best performing sectors migh be tomorrow's worst performing sectors.

Monday, July 2, 2012

Momentum Small/Mid Cap Fund to retain Evan Walker as Portfolio Manager

Momentum Collective Investments has announced that, the manager of its highly successful Momentum Samll/Mid-Cap Fund, will joing 36One Asset Management from 1 August 2012. However, he will continue to manage the Small/Mid-cap Fund. This will no doubt bring relief to existing investors. Below is the communication from Momentum.

2 July 2012

Good afternoon,

Evan Walker, fund manager of the multi award-winning Momentum Small/Mid-Cap Fund, will join 36ONE Asset Management (36ONE) with effect from 1 August 2012. 36ONE is an independent, owner-managed specialist investment manager, formed in 2004 by Cy Jacobs and Steven Liptz. The highly skilled team is renowned for its top performing unit trusts, hedge funds and segregated portfolios.

We have agreed with 36ONE that Evan will continue to manage the Momentum Small/Mid-Cap Fund, thus maintaining the existing philosophy and process he has refined and implemented up to now, which has resulted in highly rewarding returns for investors over three, five and seven years.
Through our MET Collective Investments business (MET), Momentum Investments has been in partnership with 36ONE for seven years, providing them with two third-party branded collective investments funds, being the 36ONE Flexible Opportunity Fund and the 36ONE MET Equity Fund (previously known as the 36ONE Target Return Fund).

MET and Momentum are responsible for administration and CISCA compliance, while 36ONE is the portfolio manager. 36ONE is one of our top-performing third-party portfolio partners who have also been acknowledged with both Raging Bull and Morningstar Fund Awards in the recent past. We look forward continuing our successful partnership with 36ONE and Evan going forward, while ensuring that we do our best to meet our investors’ expectations.

The above changes will not impact your relationship with Momentum and the portfolio will be managed in a similar manner to the past.

Should you have any further queries in this regard please contact us directly.

Robert Walton
Chief Executive Officer
Momentum Collective Investments
083 327 1391

Tuesday, April 3, 2012

Investing in US shares

With the rising prominence of US technology companies like Apple, Google, and forever present Microsoft, and the attractive potential returns associated with these companies, more and more people are asking, "how do I invest in US shares directly?"

Given the exchange controls in place in South Africa, it is not a straight-forward task. However, it is also not insurmountable. There are brokerages in South Africa that let clients invest in foreign shares, albeit with higher costs.

After having googled to find an answer, I have found an article that perhaps direct us to a good way of investing in US shares directly, for non-US citizens:


The article suggest opening an account with US based brokers, it gives the steps to follow, and it gives two discount brokers that accept non-US citizens:

sogotrade, USD3.00 per transaction
just2trade, USD2.50 per transaction.

Some of the advantages of investing in the US stock market include:
- the largest stock markets in the world;
- high liquidity;
- exposure to many quality companies with worldwide operations and markets;
- exposure to tech stocks not available in South Africa.

Take action today and own shares in some of the top companies in the world!

Monday, March 5, 2012

WBHO half-year results out

WBHO published its half-year results in February 2012. Its revenue was up 16.5%, while earnings per share down 8.6%. The market expects the full-year earnings to be down from last year, about 1260 cents per share. At less than 10 times forward PE, it is still relatively cheap compared to the market.

The geographical split of the order book is 61% foreign and 39% local, indicating the company becoming more international.

We continue to rate the company a BUY at the current price of around R119.

Monday, January 30, 2012

Raging Bull Award winners

DOMESTIC MANAGEMENT COMPANY OF THE YEAR. The South African-domiciled management company with the best overall performance across sectors consisting of a suite of five or more rand-denominated funds with at least three years’ history. ALLAN GRAY
Certificate for Second-best Company: NEDGROUP INVESTMENTS
Certificate for Third-best Company: CORONATION
OFFSHORE MANAGEMENT COMPANY OF THE YEAR. The overseas-domiciled management company with the best overall performance across sectors consisting of a suite of five or more non-rand-denominated funds with at least three years’ history. INVESTEC
Best Broad-based Domestic Equity Fund. The fund with the highest ProfileData total investment return ranking over three years in the Association for Savings & Investment SA (Asisa) domestic equity general, value and growth sectors. PSG EQUITY FUND
Best Domestic Fixed-Interest Fund. The fund with the highest ProfileData total investment return ranking over three years in the Asisa domestic fixed-interest bond and income sectors. ALLAN GRAY BOND FUND
Best Foreign (South African-domiciled) Equity Fund. The fund with the highest ProfileData total investment return ranking over three years in the Asisa foreign equity general sector. SIM GLOBAL BEST IDEAS FEEDER FUND (A)
Best Offshore Global Equity Fund. The fund with the highest ProfileData total investment return ranking over three years in ProfileData’s offshore global equity general sector. CORONATION GLOBAL EMERGING MARKETS FUND
Best Domestic Asset Allocation Flexible Fund. The fund with the highest PlexCrown rating over five years in the Asisa domestic asset allocation flexible sector. PSG FLEXIBLE FUND
Best Domestic Asset Allocation Prudential Fund. The fund with the highest PlexCrown rating over five years in the Asisa domestic asset allocation prudential high equity, medium equity, low equity and variable equity sectors. OLD MUTUAL REAL INCOME FUND
Best Domestic General Equity Fund. The fund with the highest PlexCrown rating over five years in the Asisa domestic equity general sector. AYLETT EQUITY FUND
Best Offshore Global Asset Allocation Fund. The fund with the highest PlexCrown rating in ProfileData’s offshore global asset allocation flexible and prudential sectors. INVESTEC GSF GLOBAL STRATEGIC MANAGED FUND (A)
The Raging Bull Awards recognise the top performers on both outright performance and risk-adjusted performance.
The top funds on outright performance over three years in most domestic, rand-denominated foreign and offshore unit trust sub-categories receive a certificate, and Raging Bull Awards are made in the sub-categories or sectors that attract the most funds.
Other certificates and Raging Bull Awards – particularly for the asset allocation funds and the more popular sub-categories – are awarded on the basis of risk-adjusted returns over five years, as measured by PlexCrown Fund Ratings. Risk management is a major factor in determining a fund’s success.
To qualify for a Raging Bull Award or a certificate, or for the PlexCrown ratings, a fund must:
* Be open to retail investors.
* In the case of an award made on the basis of straight performance, be in a domestic unit trust sub-category (including South African-domiciled foreign funds) that has at least five actively managed funds with histories of three years or more.
* In the case of an award made to a foreign-domiciled (non-rand-denominated) fund on the basis of straight performance, be in a sub-category that has at least six actively managed funds with histories of three years or more.
* In the case of an award made on the basis of risk-adjusted returns, be in a major asset allocation sub-category, or in one of the other larger sub-categories. Sub-categories that have at least five actively managed funds with histories of five years or more are included in the awards.
* Not be a passive or index-tracker fund.
* Not be a money market fund.
* Not be a Fundisa fund.
* Not be in a varied specialist sub-category or in the domestic asset allocation targeted absolute and real return sub-category where mandates differ widely.
* Not have changed sub-categories during the past year.
* In the case of offshore funds, have been registered with the Financial Services Board for at least a year.

Wednesday, January 25, 2012

Our yearly model share portfolio for 2012

This year we continue to include more foreign companies in our portfolio, at the expense of the South African companies. The JSE market capitalisation only accounts for 1% of the world stock exchange market capitalisation, and we are finding more opportunities offshore.

The shares in our portfolio are as follows: (The share price is in ZAR, in cents)

Name Weigting Share price
Anglo 10% 29600
Apple 8% 327645
BHP Billiton 10% 23430
Ellies 5% 221
Exxaro 10% 16800
Google 8% 522533.1
HTC 8% 13265.715
Samsung 10% 737843.2
South Ocean 5% 140
Total 10% 41389.285
TPK 8% 10529.828
WBHO 8% 10519

Thursday, January 5, 2012

Why Telkom is Eishkom

Two days ago I asked my PA to contact Telkom to cancel my residential ADSL service. After holding on for more than one hour, she eventually spoke to a consultant and transferred the call to me.

This is after I held on for more than half an hour to try to get to a consultant for the same purpose.

No wonder many customers complain about Telkom, about their poor service.

From an investment perspective, how can investors have confidence in a company that provides poor customer service?