Glacier’s endowment plan gives exposure to international shares
• Active fund-management orientation with estate planning benefits and without tax hassles
There are dozens of investment seminars every month, mainly to spoon-feed financial advisers so they don’t have to do research. Sometimes there are not wholly reputable firms wishing to repackage an overseas pension for a massive fee or transfer your assets to a high-margin, inflexible endowment policy.
The most valuable conference I have been to recently was from Glacier by Sanlam. It was a tight three hours long, focusing on four fund managers: Schroders, Investec, Dodge & Cox and Baillie Gifford. It didn’t drag. It was entirely focused either on equity investment or on relevant issues around the Glacier platform. I was sceptical when it presented the benefits of its Global Life Plan, as I associated such endowments with high fees. But there are some significant advantages.
It is a South African policy so the investments form part of a South African estate. That doesn’t mean you get a pile of rand when the policy matures or on death, as it can be kept in foreign currency. And assets held “naked” will be subject to foreign death duties, which are 40% in the US and UK.
With a life wrapper, Glacier or main competitor Old Mutual International takes care of payments to the South African Revenue Service. And contrary to popular belief, the “Glacier” name does not refer to the pace of its administration.
For now the taxes are more attractive than they would be in most jurisdictions, with capital gains tax of 12% on realised gains, 30% on income (the lower rate that endowments pay) and 15% foreign dividend tax.
Of course, a key variable is investment returns. Glacier International head Andrew Brotchie says just 3% of the assets on the firm’s platform are in index funds, so it is critical to back the right active manager.
At the conference Glacier suits Francis Marais and Leigh Kohler interviewed the fund managers. They won’t pose any threat to my colleagues at Business Day TV, such as Giulietta Talevi and Stephen Gunnion, but at least they kept the discussion quite interesting.
None of the managers was a dull, closet index manager and they had contrasting styles. Dodge & Cox, a San Franciscobased manager that has been going since 1930, calls itself a value manager but that doesn’t mean it doesn’t look for growth, says vice-president Kevin Johnson. In fact, he believes there are few deep-value bargains around right now. It doesn’t see many in consumer staples — it holds only the Russian supermarket chain Magnit and nothing in the developed economies. It holds Alphabet and Microsoft but none of the more speculative tech giants such as Facebook and Netflix.
Not that it avoids entrepreneurial companies. Capital One has expanded from being a credit card supplier to a regional banking group in the US, all under the watch of founder Richard Fairbank. Barclays plc appeals more to the value side of Dodge & Cox’s thinking, but Johnson says it has three decent businesses after disinvesting from its African operations: its UK high street bank, credit card business Barclaycard and the remnants of the international investment bank acquired when Lehmans went bust.
More than a quarter of the portfolio is in financials, but Johnson points out that this is highly diversified and not dependent on one factor such as the changes in the Fed rate: for example, American Express will not be affected and BNY Mellon earns massive annuity income from its custodian services and asset managers. Charles Schwab, a brokerage with a large online presence, has its own dynamics. And Dodge & Cox holds two of the large European insurers, Aegon and Aviva.
Dodge & Cox has a highly stable team and is owned by the key staff. Its style can’t win every year — in 2011 and 2015 it was six percentage points or more behind the MSCI World Index — but ask your adviser to take a serious look at the fund.
Baillie Gifford has a similar culture to Dodge & Cox as a long-term investor owned by the partners and with a very low staff turnover. The difference is that it is a growth investor trying to look for tomorrow’s winners. It is based in Edinburgh and chief investment strategist Iain McCombie insists that the firm’s long-standing Scottish clients have bought into the long-term philosophy. These clients don’t mind at all if it loses a few shillings of their money in any given year, he assures me.
An example of the long-term approach is Baillie Gifford’s investment in Elon Musk’s electric-car business, Tesla. McCombie says in 1900 almost all the vehicles in New York were horse drawn, yet by 1913 almost all were cars. A transformation to electric could be just as quick. And in 10 years three tech businesses have gone from nothing to $10bn — Facebook, Google and Amazon Web Services. He says many investors grossly underestimated the potential for Amazon — once thought to have a ceiling of $6bn sales — as a book retailer.
Baillie Gifford travels far and wide for shares, recently picking Japanese baby bottle manufacturer Pigeon, now focused on the Chinese yuppie market. The Baillie Gifford Managed Fund will appeal to some investors as it is a balanced fund, with a very similar asset allocation to a local high-equity fund, currently about 75% in equities.
Investec is the only South African business to create an integrated international manager and it certainly wasn’t laughed off stage next to the other firms. Its Global Franchise Fund has added 2.1% a year on the World Index since inception nearly nine years ago.
Head of research Rob Forsyth points out that while the fund is light in banks, it owns other financials with more dependable income, such as Visa and Moody’s. It is a fund with names you will have heard of that tend to hold up well in falling markets, such as Microsoft, Johnson & Johnson, Nestle and Roche.
Schroders is at last giving some publicity to its third musketeer: following on the heels of its global value and global core funds is equity alpha, run by Alex Tedder. It aims to exploit persistent inefficiencies and (though this might be PR-driven) it makes a fuss about environmental, social and governance issues. Tedder says the team looks closely at earnings revisions and the probability of earnings surprises.
IT IS A SOUTH AFRICAN POLICY SO THE INVESTMENTS FORM PART OF A SOUTH AFRICAN ESTATE