These dividend funds may attempt to unwind their structures and convert to investments that will not be affected by the proposed tax amendments. The problem that they may face is that their FSB approved supplemental deeds and the limited availability of suitable investments may not allow them to do this. Failing this strategy, they may choose to offer their investors alternative pre-tax investment options similar to those offered by the rest of the market.  (This is a follow up feature, read here for the first post.)

Clients in dividend income funds are currently invested in a cautious portfolio offering of…

  • Capital preservation
  • Mainly tax free dividend income (after tax focus)
  • Liquidity

If investors want to maintain a similar risk profile, the following unit trust funds are available:

  • Sanlam Alternative Income Fund
  • Sanlam Dividend Income Fund of Funds

If investors are looking for slightly higher returns with higher risk, they may invest in the unit trust funds below:

  • BOE Preference Share Fund
  • Coronation Preference Share Fund
  • Grindrod Diversified Preference Share Fund
  • PSG Preferred Dividend Fund
  • Sanlam Optimised Income Fund
  • Satrix Divi

Currently, Sanlam is the only manager that offers a range of after tax focused unit trust funds.

What are the key features of the three Sanlam funds?

 Sanlam Alternative Income Fund

  • Investment mandate limited to redeemable preference shares and money market
  • No exposure to non-cumulative or fixed rate preference shares, perpetual preference shares, swap transactions or structured redeemable preference shares
  • 24 Hour liquidity
  • Monthly income distributions
  • Return will track short term interest rates
  • Benchmark is the after tax return of the SIM Money Market Fund
  • AA–(zaf) rated by Fitch Ratings
  • Low capital risk (high quality, variable rate investments only)

Sanlam Dividend Income Fund of Fund

  • Investment mandate limited to Sanlam Alternative Income Fund and income funds
  • No exposure to equity funds or perpetual preference share funds
  • 48 Hour liquidity
  • Monthly income distributions
  • Return will track short term interest rates
  • Target to outperform the Sanlam Alternative Income Fund by 1% over any 1 year period
  • Benchmark is the after tax return of the SIM Money Market Fund
  • Slightly higher risk than the Sanlam Alternative Income Fund
  • Low volatility (only 25% income fund exposure)
  • Low total expense ratio
  • Available via Glacier

Sanlam Optimised Income Fund

  • Investment mandate limited to redeemable and perpetual preference shares (bank and corporate), income funds and money market funds
  • Liquidity – one month notice
  • Monthly income distributions
  • Return will track short term interest rates
  • Target  to outperform the Sanlam Alternative Income Fund by 2% over any 1 year period with lower volatility than listed preference share unit trust funds
  • Benchmark is 60% of the STeFI Composite Index
  • Lower volatility than listed preference share funds
  • Cautious risk profile

 

Please let us know, by commenting, if you have any topics that you’d like us to discuss with you.

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Team Ora

 

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