Reader's question: Investing offshore with Easy Equities TFSA

By Lizelle Steyn

21 March 2023

Photo credit: Vlad Alexandru Popa

On the way to Freedom asks:

1. I’ve chosen the Easy Equities platform for my TFSA. I’m also looking at the Vanguard S&P 500 (VOO) or something similar as my chosen ETF. Can I invest offshore with a TFSA?

Answer:

Yes. Unlike a retirement product, a TFSA allows you to invest 100% offshore, if you please. You’ll be buying a locally made ETF that tracks an offshore index. Examples of local ETF providers are 1nvest, Coreshares, Satrix and Sygnia. They will take your rands, convert it into dollars and either buy into an offshore fund that tracks your chosen index, or directly buy shares listed offshore to track that index.

About the timing of taking your money offshore:

Because rands get converted into dollars, it’s important to check the rand/dollar exchange rate before you buy an ETF with offshore exposure. Currently the dollar costs about R18.50, which most economists view as significantly undervalued (too weak). At one point last year, one dollar cost less than R15. If you buy an offshore ETF at current rand levels, it’s possible that it weakens even further, but eventually it reverts back to a more rational (stronger) level. If you buy now and it moves back to under R15/$, your investment value would be about 20% down, if the offshore index stays unchanged. If offshore stocks fall, the market value of your investment would be even less.

You can transfer your money to the Easy Equities TFSA wallet, to make use of this year’s TFSA R36 000 allowance, but think twice about investing everything in the wallet offshore at these weak rand levels. You can either wait for the rand to strengthen to your desired level and then use all the cash in your TFSA wallet to buy the offshore ETF or you can ‘space out’ the investment, i.e. buy into the ETF bit by bit every month, so you get the average exchange rate (approximately) for the tax year.

About choosing an offshore index:

Before choosing an offshore index, it’s important to know which parts of the globe it covers and whether it tracks only large companies, or mid- and small-sized ones too. This article on global equity indices pins the main indices to their region on the world map.

The S&P 500 that you mention invests in only one country – the US. The US makes up about 60% of world markets. It’s popular among US investors and global investors with a negative view of European, Japanese, and emerging markets.

If you don’t have a view on any specific market and just want exposure to all developed offshore markets, the Satrix MSCI World is available on the Easy Equities platform. For even broader exposure, also to emerging markets and mid- and small-sized companies, there’s the CoreShares Total World ETF. They use your rands to buy dollars in the Vanguard Total World Stock ETF. It’s the broadest equity exposure available on the Easy platform.

There is no right or wrong when choosing an offshore index to track. Nobody knows in advance whether a narrower US exposure or a broader exposure to all developed and emerging markets will perform better over the years that you will be invested. As long as you choose a well diversified index. The S&P 500 covers about 500 companies in the US, and the US constitutes about 60% of the world’s markets because of the size of the companies listed there, many of them operational across the globe.

You cannot control how the markets will perform in future, but you can control how well diversified you are, how tax effective you invest (thumbs up – you chose a TFSA) and how reasonable the fees are (all the main offshore ETFs are well priced compared to actively managed funds, so you can tick that box too).

2. On the Easy Equities app I can find only the following S&P 500 options. Are Easy Equities, Satrix, 1nvest, Coreshares and Sygnia all platforms?

• SATRIX S&P 500 ETF (STX500)
• 1NVEST S&P500 INFO TECH Index feeder EFT (ETF5IT)
• CORESHARES S&P500 ETF (CSP500)
• SYGNIA Itrix S&P 500 ETF(SYG500)

Answer:

Easy Equities is only a platform. They don’t build their own ETFs.
Coreshares is only an ETF provider/builder. They’re not a platform.
Satrix and Sygnia build their own ETFs but can also act as a platform when you buy your TFSA from them instead of Easy Equities.

3. If I, for example, choose the Sygnia Itrix S&P 500 ETF, do I pay both platforms for their service? (That wouldn’t make sense.)

Answer:

No, you would only pay the fees at fund level for the Sygnia ETF and not the Sygnia platform fees. You would need to pay the platform fee of Easy Equities, as you mention.

4. Does Easy Equities offer a similar ETF to the S&P 500 (VOO)?

Answer:

The four SA-based S&P 500 ETFs which you see on the Easy Equities app under the TFSA tab are very similar to the VOO, with the exception of the 1NVEST S&P500 INFO TECH. The latter includes only the tech stocks in the S&P 500. As far as the other three are concerned, their performance should be good enough proxies of the S&P 500 index. Vanguard is a US-based ETF builder and if you specifically wanted Vanguard, you would have to buy that via the Easy USD account – without the benefits of the TFSA. The three local S&P 500 ETFs – Coreshares, Satrix, Sygnia - are good options to track the S&P 500 index and the good news is that they can be used within the TFSA account.

5. Is it possible to make the S&P 500 70% of my investment and invest the rest more aggressively?

Answer:

Investing offshore in an equity/stock market ETF is already considered aggressive. You carry both the risk of currency ups and downs and the risk of stock market ups and downs. Be prepared, being invested offshore can feel like an emotional roller coaster. Equity is the most volatile of the 4 asset classes (cash; bonds; property; equity). The only asset class that’s more volatile is the ‘alternatives’, like crypto and commodities (oil and gold). The regulator has decided that crypto and commodities are too high risk and you’re not allowed to buy them with your TFSA.