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VEGA Newsletter April 2023

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VEGA Newsletter March 2023

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Share focus: Aerospace and Defense ETF

The world isn’t getting any safer and as long as that remains the case, there is going to be demand for defense companies and the products they manufacture. Defense stocks tend not to be as glamorous as tech stocks but provide reliable revenue and income. Defense stocks tend to be stable contributors to an income-focused portfolio, with predictable long-term revenue streams that translate into solid dividends.

The aerospace and defense industry plays a vital role in the global economy by supporting and facilitating passenger transportation, trades, logistics, security and defense. The industry consists of several players servicing both commercial and military operations across the value chain. These players include aircraft manufacturers such as Boeing and Airbus; part manufacturers such as GE Aviation, Lockheed Martin, BAE Systems and Rolls-Royce Holdings; and Maintenance, Repair and Overhaul (MRO) organisations which are the aftersales service providers. The majority of these large firms are located in the United States of America which accounts for 49% of the total industry value.

Figure 2: Space economy and its subsectors/themes forecast up to 2040


Source: Morgan Stanley Research, Haver Analytics

According to Morgan Stanley (MS), the current market value of the space economy is $350 billion and is expected to grow to $1 to 1.5 trillion in 2040 or a 5,3% annual compounded growth rate over the 20-year period from 2020 to 2040.

The figure 3 shows the annual average US military spending by war vs US military aid to Ukraine (in $bn’s). It is astonishing to see that the aid to Ukraine exceeds America’s spent in the Afghanistan war. Important to note, military aid does not include weapons and equipment.

Source: RMB, Morgan Stanley

No one of the defense contractors gives exposure to the entire industry. Therefore, it might make more sense to invest in the defense sector through an exchange-traded fund (ETF).  As a result, we prefer to have exposure to the aerospace and defense sector via the iShares U.S. Aerospace & Defense ETF (ITA), which is also the largest ETF focused on defense, with $4.7 billion in net assets as of early December 2022. This ETF is designed to provide exposure to domestic United States aerospace and defense companies, as well as exposure to the commercial aerospace industry.

Figure 4: iShares U.S. Aerospace & Defense ETF (ITA) top 10 holdings (%)

Source: iShares, 31/12/2022
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VEGA Newsletter February 2023

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Business Day Market Report with Louis Storm – 6 Feb 2023

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Tax-Free Investment Account

If you’re looking for tax-free investment options, look no further than our Standard Bank Tax-Free Investment Account (TFIA). A TFIA was first introduced in 2015, as part of one’s non-retirement savings, as a way to promote household savings whilst also maximizing tax relief. TFIA’s are most effective when started early in life, as the benefits accrue over time, rather than upfront. In other words, contributions are not tax deductible, but rather future profits are tax exempt. So, the earlier one starts contributing, the more tax-free compounding takes place.

What are the primary features of a TFIA?

  • No tax on interest or other income
  • No dividend taxes
  • No capital gains tax
  • The annual contribution limit is R36 000 per investor, and the lifetime contribution limit is capped at R500 000.

What underlying investments can be held inside the TFIA?

  • Fixed deposits
  • Unit trusts
  • Linked investment products
  • Exchange Traded Funds (ETF’s)

Can I contribute more than R36 000 per annum to my TFIA?

The answer is yes, but not recommended. Any excess amount contributed to the TFIA during any given tax year, is penalized at 40% of the excess amount contributed. In other words, if one invested a total of R50 000 during the year, then they would be taxed R5 600 (40% x R14 000) on the over-contribution. It is also possible for an investor to have more than one TFIA, but the total amount contributed (across accounts) each calendar year is taken into account when monitoring the annual limits. In other words, if you invest R30 000 into your first TFIA and R12 000 into your second TFIA, then you are R6 000 over your annual contribution level and hence subject to 40% tax on the excess R6 000.

Are there any lockup periods like a Retirement Annuity?

Unlike a retirement annuity where your funds are locked up until you reach the age of 55, investors have access to their TFIA funds whenever they need. When making a withdrawal out of your TFIA, investors should be cautious that your annual contribution level does not change. In other words, if you have contributed R36 000 already this tax year, and then take out R6 000, you cannot now add back that R6 000 until next year, and even then, that R6 000 will then take up part of that year R36 000 limit.

Who can apply for a TFIA?

Anybody with a South African ID number from birth is eligible to have a TFIA. This makes the TFIA a great option for just about anyone who wants to invest, especially if you’re investing for the long term. Parents can invest on behalf of their minor/child. The minor/child will use his/her own annual or lifetime limits. This is a great opportunity for families to use this benefit and allow them to donate up to R36 000 per year per child. A factor to consider is that once the child turns 18 years old, the investment will vest in their name and the child will be allowed to withdraw the funds

If you are an existing client at VEGA and have a Standard Bank equities account, then you automatically have a TFIA. If you did not know about this please reach out to Abrie Smit (amit@vegacapital.co.za) for your account number. At VEGA, you will also not pay any initial fees or annual administration fees. The only fees payable are the annual management fees applicable to the underlying signed mandate. If you are interested in opening up a TFIA before the end of February 2023, then please feel free to contact either Abrie Smit or Louis Storm at asmit@vegacapital.co.za and lstorm@vegacapital.co.za.

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VEGA Newsletter January 2023

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International Reporting Calendar Quarter 1 – 2023

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VEGA Newsletter December 2022

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Business Day Interview with Louis Storm – 29 Nov 2022