Tuesday, 10 February 2015 - 20:00
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Seed Weekly - Endowment Policies?
Endowment Policies?
Using endowment policies as an investment vehicle is usually one of my most difficult “sells” as a Wealth Manager. The moment a client hears the word “endowment”, the hairs on the back of his neck tend to rise and the fight or flight syndrome kicks in. Unfortunately, this reaction is not totally unjustified. Endowment policies have a legacy of high total costs (especially in terms of commission), vague returns and conditions, and front end loading of costs. Quite often in the “good old days” of twenty year endowment policies, the first year of premiums disappeared in costs.
Given all of the above, and the fact that I don’t charge initial fees or use any investment products that charge initial investment fees, why on earth would I be suggesting that clients use endowments? The fact is that things have changed. We now have “endowment wrappers” with no upfront costs and transparent costs and returns. They are mainly housed on the various unit trust platforms. When the investment holder is a Trust and the investment objective is long term growth, the use of an Endowment becomes a “no brainer”.
Endowments are often marketed as tax free investments by unscrupulous or ill-informed advisors, this is incorrect. They are, however, often tax efficient vehicles especially when the investor is a Trust.
Below is a comparison of the current tax treatment of endowments and discretionary investments in a trust, which clearly shows the tax advantages of an endowment:
Below is an illustration in the differences in tax paid by a Trust on a R 25m discretionary investment on the one hand, and through an endowment wrapper on the other. In this case the platform charged no extra fee for housing the investment in the endowment wrapper. Returns are assumed at 10% pa (6% capital + 2% income + 2% net dividend).
As can be seen, the discretionary investment has a much higher tax burden, which results in a much lower after tax return. In this instance the discretionary investor’s net investment after 5 years would be just over R 37m (8.2% pa), while the endowment’s net investment after 5 years would be just over R 39m (9.3% pa).
There are restrictions when using the endowment in that you are only allowed one withdrawal in the first five years and that withdrawal is restricted to the contributions plus 5% per annum growth (some companies also allow an interest free loan). But endowments have the added advantage that the taxes are paid by the wrapper so income does not need to be included in the Trust’s tax return. This means that nasty income tax surprises are avoided.
So when your wealth manager wants to use an endowment wrapper to house your investments hear him out. If, however, returns are opaque and costs are difficult to explain and understand think carefully.
Kind regards,
Barry Hugo
www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966
Tue, 10 Feb 2015
Top News
Local markets
On Tuesday, the JSE All Share edged up 0.01% as rising financials and industrials just managed to offset losses in gold miners and resource shares. Full story |
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President Barack Obama and the family of U.S. aid worker Kayla Mueller confirmed on Tuesday that the last-known American hostage held by Islamic State militants had died, with Obama promising to "find and bring to justice the terrorists who are responsible." Full storyDominique Strauss-Kahn told a French court on Tuesday he did not know the women at "festive and playful" sex parties he attended were prostitutes, saying that would have been too risky given his then-role as head of the IMF. Full storyUkrainian President Petro Poroshenko said peace talks in Minsk on Wednesday were one of the last chances to declare an unconditional ceasefire in the conflict with Russia-backed separatists, a statement on his website said on Tuesday. Full story |
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Markets | U.S. and European shares rose
on Tuesday after press reports on the possibility of a debt
agreement between Greece and its major creditors,. . . Full story | | Gold dipped on Tuesday as an
uptick in the dollar offset the supportive impact of concerns
over Greece's future in the euro zone. . . Full story | | Hong Kong shares erased
earlier losses and ended flat on Tuesday, as rebounding mainland
stocks eased worries stemming from overnight weakness in global
equity. . . Full story | | Japan's Nikkei share average
slipped on Tuesday as Greece's rejection of its bailout terms
fuelled concerns fresh turmoil in the euro zone, but. . . Full story |
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| Australian shares fell for a
second day on Tuesday, as concerns about Greek debt negotiations
gave investors good reason to cut exposure. . . Full story | | The yen advanced against the
dollar and euro on Monday as investors sought safety in the
Japanese currency on worries about the conflict. . . Full story | | Gold edged up from the
previous session's three-week low on Monday, as European
equities were hurt by soft Chinese trade data and worries. . . Full story | | Stock indexes worldwide slipped
on Monday on weaker-than-expected Chinese trade data and
uncertainty about Greece's position in the eurozone, while oil
prices surged after. . . Full story |
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SA Business | South Africa's power utility Eskom said on Tuesday it would implement controlled outages from 1400 GMT to 2000 GMT due to. . . Full story | | South Africa's Kumba Iron Ore plans to cut jobs, production costs and capital spending to cope with expected weak prices of. . . Full story | | South Africa's manufacturing production was up 1.1 percent year-on-year in December after a revised 1.9 percent contraction in November, Statistics South. . . Full story | | Anglo American Platinum said on Tuesday its mechanisation drive was in full swing and ready to be tried in Twickenham, a. . . Full story |
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| South Africa's Kumba Iron
Ore plans to cut jobs, production costs and capital
spending to cope with expected weak prices of the commodity. . . Full story | | South Africa's Treasury sold a total of 2.35 billion rand ($203 million) worth of its 2030, 2044 and 2048 bonds on. . . Full story | | South Africa's unemployment rate decreased to 24.3 percent of the labour force in the fourth quarter of 2014 from 25.4 percent. . . Full story | | South Africa's Northam Platinum said on Tuesday it will acquire Aquarius Platinum's Everest mine and related assets for 450 million rand. . . Full story |
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| Rio Tinto
is expected to star among the top five global
miners with a return of billions of dollars to shareholders at
its annual results, even as the firm is set to report its worst
half-year profit since 2009.. . . Full story |
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Company Results | Revenue for the interim period shot up to R262.5 million (2013: R190.9 million). Gross profit jumped to R117.1 million (2013: R80.5 million), profit from operations grew to R37.9 million (2013: R20.5. . . Full story | | Revenue for the interim came in at R8.1 billion (2013: R8.1 billion). Gross profit plummeted to a loss of R143 million (2013: profit of R537 million), operating loss came in. . . Full story | | Net sales revenue grew to R55.6 billion (R52.4 billion). Operating profit was lower at R843 million (R2 biillion). Profit attributable to owners was at R624 million (loss of R1.4 billion). In. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:02 | 52109.54 | 4.16 | 0.01% | JSE Top 40 | 17:00 | 45916.40 | 41.07 | 0.09% | JSE Gold | 17:00 | 1522.72 | -7.62 | -0.50% | JSE Financial | 17:00 | 43177.82 | 163.20 | 0.38% | JSE Industrial | 17:02 | 73253.77 | 257.06 | 0.35% | JSE Indust 25 | 17:00 | 64868.57 | 298.37 | 0.46% | JSE Resource | 17:00 | 44267.09 | -642.26 | -1.43% | DJ Futures | 18:18 | 17733.00 | 46.00 | 0.26% | DJ Ind | 19:58 | 17822.49 | 93.28 | 0.53% | SP 500 | 19:58 | 2060.50 | 13.76 | 0.67% | Nasdaq | 19:58 | 4769.67 | 43.66 | 0.92% | FTSE 100 | 17:59 | 6807.09 | -30.06 | -0.44% | DAX | 19:08 | 10753.83 | 90.32 | 0.85% | CAC40 | 19:08 | 4695.65 | 44.57 | 0.96% | Nikkei | 08:28 | 17652.68 | -59.25 | -0.33% | Shanghai | 09:28 | 3141.59 | 46.47 | 1.50% | Hang-Seng | 06:28 | 24526.47 | -39.45 | -0.16% | All Ords | 07:40 | 5757.40 | -12.70 | -0.22% | NZSE 50 | 06:48 | 5784.09 | 14.52 | 0.25% |
| | Name | Time | RP | Move | % Move | Gold $ | 19:59 | 1233.53 | -4.74 | -0.38% | Gold R | 19:57 | 14427.09 | 14427.09 | 0.00% | Gold R/kg | 19:58 | 463797 | 2648 | 0.57% | Silver $ | 19:59 | 16.9170 | -.0480 | -0.28% | Platinum $ | 19:59 | 1206.30 | -7.60 | -0.63% | Palladium $ | 19:59 | 766.00 | -11.40 | -1.47% | R186 | 16:49 | 7.51 | .06 | 0.81% | R204 | 16:49 | 6.80 | .03 | 0.44% | R207 | 16:49 | 7.00 | .12 | 1.67% | Brent Crude | 19:58 | 57.08 | -.72 | -1.25% | Rand / Dollar | 19:59 | 11.6948 | 0.1188 | 1.03% | Rand / Pound | 19:55 | 17.8143 | 0.2210 | 1.26% | Rand / Euro | 19:55 | 13.2358 | 0.1143 | 0.87% | Rand / NZD | 19:57 | 8.6690 | 8.6690 | 0.00% | Rand / AUD | 19:55 | 9.0944 | 0.0597 | 0.66% | Yen / Dollar | 19:59 | 119.3600 | 0.7580 | 0.64% | Euro / Dollar | 19:55 | 0.8832 | 0.0005 | 0.06% | Dollar / Euro | 19:59 | 1.1312 | -0.0012 | -0.11% | Pound / Dollar | 19:55 | 0.6551 | -0.0019 | -0.29% |
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Click here for the Sharenet Spot Price page
The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
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10/02/2015 | 156 | 198 | 72 | 426 | 262,144,818 | R17,930,078,635 | 230562 | 1669516 | 09/02/2015 | 164 | 197 | 72 | 433 | 219,431,535 | R14,258,400,236 | 182194 | 1222509 | 06/02/2015 | 211 | 131 | 72 | 414 | 221,578,115 | R14,647,310,520 | 202886 | 366070 | 05/02/2015 | 182 | 172 | 68 | 422 | 256,679,158 | R17,395,596,192 | 216908 | 759183 | 04/02/2015 | 144 | 223 | 64 | 431 | 314,925,199 | R20,958,208,081 | 291181 | 913612 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 45,916.40 | 41.07 | 0.09% | Industrial | 73,253.77 | 257.06 | 0.35% | Mid Cap | 74,309.77 | -368.55 | -0.49% | Small Cap | 60,234.11 | 9.51 | 0.02% | Resource 20 | 44,267.09 | -642.26 | -1.43% | Industrial 25 | 64,868.57 | 298.37 | 0.46% | Financial 15 | 16,540.91 | 76.67 | 0.47% | Financial & Ind. 30 | 69,471.08 | 351.85 | 0.51% | All Share | 52,109.54 | 4.16 | 0.01% | Oil & Gas | 34,752.44 | -744.05 | -2.10% | Mining | 26,640.32 | -335.26 | -1.24% | Gold Mining | 1,522.72 | -7.62 | -0.50% | Platinum Mining | 36.20 | -.84 | -2.27% | GENERAL MINING | 7,495.61 | -94.79 | -1.25% | Oil & Gas Producers | 18,685.74 | -400.07 | -2.10% | Basic Materials | 24,395.65 | -224.06 | -0.91% | Chemicals | 21,948.70 | 77.51 | 0.35% | Forestry & Paper | 37,859.40 | 741.29 | 2.00% | Industrial Metals | 13,194.99 | -386.88 | -2.85% | Industrials | 47,718.66 | -263.49 | -0.55% | General Industrials | 165.74 | -1.11 | -0.67% | Consumer Goods | 64,378.24 | 954.61 | 1.51% | Automobiles & Parts | 7,133.04 | -67.94 | -0.94% | Household Goods | 443.40 | -2 | -0.56% | Health Care | 10,965.07 | -90.22 | -0.82% | Beverages | 215.46 | 5.41 | 2.58% |
| | Index Name | RP | Move | % Move | Food Producers | 9,430.95 | -153.25 | -1.60% | Personal Goods | 1,015.24 | 11.58 | 1.15% | Consumer Services | 15,497.23 | 29.01 | 0.19% | General Retailers | 80,819.09 | -747.99 | -0.92% | Travel & Leisure | 6,729.04 | 131.56 | 1.99% | Media | 363.86 | 2.14 | 0.59% | Support Services | 2,838.82 | 51.45 | 1.85% | Telecommunications | 10,516.96 | -225.20 | -2.10% | Financials | 43,177.82 | 163.20 | 0.38% | Banks | 76,059.89 | -345.13 | -0.45% | Non-life Insurance | 62,529.41 | 5196.32 | 9.06% | Life Insurance | 41,083.08 | 763.95 | 1.89% | General Financial | 3,930.49 | -28.78 | -0.73% | Technology | 54,052.16 | 9.36 | 0.02% | SHARIAH TOP40 | 3,588.05 | -46 | -1.28% | FTSE/JSE SHARIAH ALL | 3,880.75 | -44 | -1.13% | COAL MINING | 13,819.97 | -214 | -1.52% | FTSE JSE Fledgling | 6,871.29 | 3 | 0.04% | FTSE/JSE Alt X | 1,500.94 | 6 | 0.39% | SA LISTED PROPERTY | 635.19 | | -0.41% | CAPPED PROPERTY | 550.53 | | 0.03% | RESOURCE | 24,376.60 | -347 | -1.40% | DIVIDEND PLUS | 242.28 | -1 | -0.29% | FTSE/JSE RAFI 40 | 9,939.14 | -25 | -0.25% | Capped Top 40 | 24,516.14 | 14 | 0.06% | Capped All Share | 26,430.91 | 2 | 0.01% | JSE TABACO | 8,355.31 | 254 | 3.14% |
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Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | AQP | AQUARIUS PLATINUM LTD | BUY | 06/02/2015 | ATL | ATLATSA RESOURCES CORP | HOLD | 06/02/2015 | IMP | IMPALA PLATINUM HOLDINGS ... | HOLD | 06/02/2015 | RBP | ROYAL BAFOKENG PLATINUM L... | BUY | 06/02/2015 | BAW | BARLOWORLD LIMITED | HOLD | 06/02/2015 |
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Results Expected** Expected | Company Name | Fin. Date | 11/02/2015 | ABSABANK-P | December 2014 (Final) | 11/02/2015 | ASSORE | December 2014 (Interim) | 11/02/2015 | B-AFRICA | December 2014 (Final) | 11/02/2015 | GROUP 5 | December 2014 (Interim) | 11/02/2015 | NEPI | December 2014 (Final) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | DELTA | 09/02/15 | 13/03/15 | 23/03/15 | ZAR 2.5000 | TOWER | 06/02/15 | 20/02/15 | 02/03/15 | ZAR 0.4199 | TRADEHOLD PREF | 06/02/15 | 20/02/15 | 02/03/15 | ZAR 0.0452 | DELTA INT | 05/02/15 | 20/02/15 | 02/03/15 | USD 0.0663 | SHPRT 3RD5 | 05/02/15 | 20/02/15 | 02/03/15 | ZAR 0.0500 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | ECSP C | 23/01/15 | 06/02/15 | 16/02/15 | ZAR 1.0164 | ECSP A | 23/01/15 | 06/02/15 | 16/02/15 | ZAR 0.7671 |
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Upcoming AGMs** Code | Company Name | Date | Status | SAP | Sappi Ltd. | 11/02/2015 | Confirmed | NWL | Nu-World Holdings Ltd. | 11/02/2015 | Confirmed | NWN | Nu-World Holdings Ltd. | 11/02/2015 | Confirmed | EOH | EOH Holdings Ltd. | 11/02/2015 | Confirmed | OCE | Oceana Group Ltd. | 12/02/2015 | Confirmed |
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