Monthly Archives: November 2016

What is the problem of the pockets of South Africans

In the wake of the #DataMustFall campaign, it seems that the data revolution might have a valid and legitimate plea. The campaign founders made a presentation before the Parliamentary Communications and Postal Committee on September 21 on the costs of data in the country. According to the soon-to-be launched findings of the FinScope South Africa 2016 consumer survey, the results show that the average South African spends about 9% of their purse on airtime and data recharge, cellphone contracts, telephone lines and internet payments. The average person spends approximately R700 a month for communication-related expenses.

Parallel to the #DataMustFall campaign, which is gaining traction, is the #FeesMustFall (reloaded) campaign, which is also resurfacing in light of the announcement of an up to 8% fee increase made by the Higher Education Minister Blade Nzimande. While university students would like to see a 0% increase, universities are requesting increases to sustain operations and fund research.

Therefore, in light of these developments and expenses, how does the purse of the South African consumer fair? The preliminary results of the FinScope 2016 survey shows that South Africans spend R688 per month on average on education.

The FinScope findings further show that South Africa’s total personal monthly consumption (PMC) expenditure in 2016 is estimated at R220 billion (monthly). On a monthly basis, the average individual spent approximately R5 400 during the period of conducting the FinScope 2016 survey. The results show that the main components of expenditure are on food (21%), transport (11%), utilities (11%) and communication, which amount to 9% of the spending purse.

Overall, individuals’ spending on education is 6% of their purse (estimated monthly spend of R12.2 billion). Further demographic analysis of the data per race showed that black communities still bear the greatest brunt of the education costs. For the average black South African, education expenses constitute 7% of their purse – this is higher compared to other races for which the purse composition for coloured, Asian, Indian and whites are at an average of 4.3% of their purse.

How to get money bonus

A lot of people who get a bonus or once off additional income for whatever reason, tend to ‘blow it’ as you have pointed out. It is therefore a very good idea to try to think of better things to do with the money. I would, however, suggest that you consider not only your immediate or short term needs but also the long term potential of any extra income you receive – no matter how small.

If you have a need for extra monthly income, which might be the case if you are currently using a credit card or overdraft because your expenses are close to or more than your current monthly income, then I support your idea of putting the money in a vehicle that will allow you to supplement your income for the next two years.

A two year term, however, is a very short time horizon for an investment and I assume you intend to be drawing the full amount over the two years. In other words, you will be left with nothing at the end.

If so, you will need access to the money and very little, if any, risk. With these constraints in mind, I would suggest either multi-asset income unit trusts – the top funds produce between 8% and 10% per annum historically – or a bank savings, call or money market account with cash immediately available. These bank accounts produce between 5.5% and 7.5% per annum, depending on the amount.

Let’s use an example and say the amount is R50 000. If you can achieve returns of 10% per annum for the next two years, this will produce an income of R2 307 per month for 24 months before being depleted. At 7% per annum, the monthly amount will be R2 194 per month, so there is only a small difference, which means it is probably not worth taking the extra risk.

The question is whether you actually need additional income or if you are just going to be spending it over 24 months instead of one month. If you don’t really have a requirement for the additional income, you may want to consider investing the amount for a longer term so that it can produce even more for you.

You could consider putting the money into a tax-free savings account or retirement annuity (RA). By contributing to an RA, you would be reducing your taxable income. This means you could get something more back from the South African Revenue Service next year, depending on what retirement contributions you are already making.

Let’s use the same R50 000 we used for the example above and assume that you are below the maximum deductible contributions to your retirement funding. This is currently 27.5% of your remuneration or taxable income, or R350 000 per annum, whichever is lower.

Exposure to the iconic US index

Index-tracking product provider CoreShares has announced the launch of two new exchange-traded funds (ETFs) in the South African market. The CoreShares S&P 500 ETF and CoreShares S&P Global Property ETF will be available to local investors from early November.

Both products track indices that are not currently tracked by any other local funds. They therefore offer additional options to investors looking to make rand-based investments that track offshore markets.

It is particularly notable that CoreShares is the first to offer South African investors direct exposure to the S&P 500, which is the most referenced index in the world.

“The S&P 500 represents the very origins of index investing,” says CoreShares MD Gareth Stobie. “The very first index products ever put together were Vanguard’s S&P 500 funds.”

According to S&P Dow Jones Indices, over $7.8 trillion is benchmarked to the S&P 500, and more than $2.2 trillion is held in 73 different products tracking it.

While South African investors can already access the US market through the db x-trackers MSCI USA ETF, the S&P 500 does offer a slightly different exposure.

The MSCI USA index is slightly broader, with 620 constituents. Its largest sector exposures are to information technology (21.14%), financials (16.2%) and healthcare (14.64%).

The S&P 500 currently has 505 constituents, with its biggest exposures being information technology (21.4%), healthcare (14.7%) and financials (12.8%).

Global property

The second new fund, the CoreShares S&P Global Property ETF, will be the first local product to track an international listed real estate index. The fund references the S&P Global Property 40, which is made up of 40 large cap property stocks listed across the world.

The exposure is concentrated in developed markets, with half of the index constituents and around 57% of the index market cap based in the US. The rest of the constituents are listed in Japan, Hong Kong, Australia, Germany, France, the UK and China.