OIG Capital Edge Portfolio versus Money Market

In the wise words of Benjamin Franklin, “nothing can be said to be certain, except death and taxes”. While we can’t do much about the fact that tax must be paid on the returns made on investments, one can aim to structure investments in such a way as to soften the blow. In this article, we outline why the OIG Capital Edge Portfolio is worth considering for investors hoping to improve the tax burden on interest-earning investments such as Money Market funds.

OIG Capital Edge Portfolio

OIG’s Capital Edge Portfolio strategy offers investors a low-risk and stable long-term total return while allowing regular withdrawals. The portfolio will predominantly invest in interest-bearing investment products, while also making use of up to 40% hedge funds.

The portfolio aims to provide investors with a high level of liquidity, preservation of capital, and a competitive return on investment. The fund seeks to maintain a stable return profile, offering investors a secure and low-risk investment option suitable for cash management needs or as a short-term investment vehicle. The fund is designed for investors seeking to minimise risk while earning income over a short-term investment horizon.

The portfolio extends its allocations to include a wider range of asset classes than a Money Market Fund. These allocations are meticulously managed to achieve smooth returns whilst minimising risk.

Exhibit 1 | OIG Capital Edge Portfolio Asset Allocation as at 1 September 2024

Source: OIG. Data as at 1 September 2024. The tactical asset allocation strategies discussed in this document involve making short-term adjustments to the asset allocation in response to market conditions or opportunities. Adjustments can be made as and when required and are subject to change.

By investing in the OIG Capital Edge Portfolio, investors effectively grow their investments in different asset classes and are subsequently taxed differently, which could lead to improved investor outcomes.

OIG Capital Edge versus Money Market Fund

In the below example, we illustrate how the OIG Capital Edge Portfolio can offer investors better tax benefits and enhanced investment outcomes when compared to a standard Money Market Fund.

The following assumptions were used in the below comparison:

A single contribution lump-sum of R5 000 000
The same growth and profit before tax of R450 000
Marginal tax rate of 45%

As can be seen in the below example, by investing in the OIG Capital Edge Portfolio, an investor’s tax would be split between local interest and Capital Gains tax (CGT), and the investor would therefore also be able to take advantage of both interest tax exemption as well as CGT tax exemption rates.

In the OIG Capital Edge portfolio, an investor would have saved R55 800 in tax, which could have been re-invested. (Assuming the investor realised the CGT gain in the first place by withdrawing).
The investor in the Money Market fund has an investment value of R5 258 210,00 (after tax) after one year, versus the Capital Edge investor whose end value (after tax would be) R5 314 010,00. Leading to the Capital Edge investor being better off by R55 800.
Should an investor prefer to invest in a Money Market fund, due consideration should be given to the tax implications and their effect on the real growth of the returns generated. At an average interest of 9.00% the net growth in this example will (hypothetically) be ±5.16% after tax is deducted, which means that the investor would actually be earning a return just below inflation.

Exhibit 2 | OIG Capital Edge Portfolio versus Money Market fund tax calculation example

Source: Author’s own calculations. Past performance is not a reliable guide to future performance. For illustrative purposes only.

Each investor is unique, with distinct financial goals, time horizons, and tax considerations. It is crucial that investors carefully assess their own financial situation and seek reputable financial advice before making any investment decisions. A qualified financial advisor can help tailor your investment strategy to your specific needs, ensuring that your decisions align with your long-term objectives and risk tolerance. Remember, informed choices today can significantly impact your financial future.

Disclaimer

Although reasonable steps have been taken to ensure the validity and accuracy of the information in this document, Optimum Investment Group (OIG) does not accept any responsibility for any claim, damages, loss or expense, however, it arises, out of or in connection with the information in this document, whether by a client, investor or intermediary.

Optimum Investment Group (Pty) Ltd. Is an Authorised Financial Services Provider (43488).

All investments involve risk, including the potential loss of principal. There is no assurance that any financial strategy will be successful. OIG does not guarantee that the results of any advice, recommendations, or strategies will be achieved. Before making any investment decisions, customers should thoroughly review all relevant investment product documents and information. It is essential to assess whether an investment aligns with your financial situation, objectives, and risk profile.

This document may contain forward-looking statements identified by terms such as “expects,” “anticipates,” “believes,” “estimates,” “forecasts,” and similar expressions. These statements involve risks, uncertainties, and other factors that could cause actual results to differ materially from those projected. OIG is not responsible for any trading decisions, damages, or other losses resulting from the use of the information, data, analyses, or opinions provided.

Past performance does not guarantee future results. Neither diversification nor asset allocation ensures a profit or protects against a loss.

The information, data, analyses, and opinions presented herein are for informational purposes only and do not constitute investment advice or an offer to buy or sell any security. References to specific securities or investment options should not be considered an offer to purchase or sell those investments. The performance data shown reflects past performance and is not indicative of future results.

The opinions expressed are those of OIG as of the date written, are subject to change without notice, and do not constitute investment advice.

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