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Dawood Essop

Short Term Local ETF Buy / Sell Due to Weak Rand

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Posted (edited)

Hello all,

 

I've had some money (Lets call it R1M) in fixed deposits that are now freed. I want to ideally purchase Satrix MSCI World & Emerging (I have my TFSA with all the local stuff to max the tax savings)

 

IDEALLY I want to buy the international ETF's when :-

- the Dollar/Rand is not at its current lowest AND / OR

- the ETFs might bottom out a bit more over the next few months (I disclaim my idealism ;) )

My research indicates I might have to wait between 3 and 12 months for either or both of the above to occur.

 

Therefore, I'm considering a tactical plan :-

- buying a short term low transaction cost ETFs (e.g. Newfunds Govi  which is offering smashing rates of 11.5%)

- selling the ETF when the above 1 or 2 conditions are met

- Buying the international ETFS

 

I know short buying/selling are shunned upon due to costs but (Rough calculations)

- Given the Newfunds Govi offering roughly R0.5 dividends and over 10% Returns

-- Interest Income over 6 months R47619.05 (R0.5 per unit) -- Income Tax of R 14 285.71(Close corp rates 30%)

-- Capital Gain of R45000 over 6 months (at 9%) -- CGTax off R10 080 (Close corp net eff rate of 22.4%)

-- minus total transaction fees of R500 (0.05% on R 1M selling after 6 months)

-- Profit R 67 753.33

 

Using similar rough calculations on a money market at 5.5% I should only get R19250.

 

Feedback requested:

1. Is my tactical plan really that nonsensical/risky?

2. I suspect that given the low The NF TRACI ETF will offer low returns given the current interest rates dive?

3. Are there any other options/suggestions?

 

image.png

Edited by Dawood Essop

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Hi

 

Just a few things you may have missed:

 

When buying or selling a share, you must pay brokerage and Strate fees, and VAT is levied on these costs.

Then there is securities transfer tax of 0.25% which is levied on every transfer of a security (both buying and selling).

 

The Newfunds Govi ETF is a total return ETF. All dividends are reinvested in the fund and not paid out, so the return you get is inclusive of dividends. Thus, dividends should be excluded from your calculation.

 

Finally, the NFGOVI is still subject to volatility and isn't guaranteed like a bank account. It's now actually down roughly 4% since three months ago. Between 10 March and 24 March, it lost almost 24% of it's value. So you'd still be timing the market. I've included the three-month graph below. Also, past performance may be different to future performance since the downgrade to junk status changes the way in which government bonds may be traded in South Africa.

 

I still think it's a great solid ETF for the medium term, but high risk over the very short term (as in your three months). I'm not sure I'd take that risk if I was planning on investing for less than a year. Especially now in these uncertain economic times where volatility is at an all-time high.

 

 

image.thumb.png.bb85b75bff484708bd5a077a0121748b.png

 

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Posted (edited)
On 4/14/2020 at 2:16 PM, Dawood Essop said:

Feedback requested:

1. Is my tactical plan really that nonsensical/risky?

2. I suspect that given the low The NF TRACI ETF will offer low returns given the current interest rates dive?

3. Are there any other options/suggestions?

 

image.png

 

1. See my post above.

 

2. The NFTRACI should be fairly constant over the short term since it consists of mixed term fixed deposits with predetermined interest rates. However, with the costs, it really isn't any better than a money market account.

 

3. Tyme bank offers excellent interest rates depending on how long you keep your money there:
6% interest from day 1,
7% after 30 days,
9% after 90 days.
10% if you give 10 days' notice after 90 days.

(According to their website.  I have some savings money there and have received these rates too.)

Edited by SaurusDNA
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