To invest in a USD ETF or a ZAR ETF?

SergioDomngos

Active Member
Joined
Feb 6, 2017
Messages
49
Hi there,

I already contribute towards a TFSA which is in the form of a ZAR ETF right.

However, I'd like to invest some significant savings into a normal ETF(non TFSA), let's say, about R100k.

Would it be beneficial to invest in a a USD S&P500 or a ZAR S&P500 for example?
 

mr_norris

Expert Member
Joined
Jun 12, 2007
Messages
3,526
I've battled with this myself.

Most of not all of the local ETFs just track the index. So the growth should match that off the dollar based S&P 500. But you are still investing rands, and are subject to the swing of the value.

On the other hand, it is costly to do Forex transactions. You lose money on buying dollars. You lose money because of transaction fees. But the end result is dollars in the S&P 500.

Most of the time I end up going the dollar route.
 

Scooby_Doo

Executive Member
Joined
Sep 4, 2005
Messages
8,136
Hi there,

I already contribute towards a TFSA which is in the form of a ZAR ETF right.

However, I'd like to invest some significant savings into a normal ETF(non TFSA), let's say, about R100k.

Would it be beneficial to invest in a a USD S&P500 or a ZAR S&P500 for example?

What's the time horizon? If you looking at plus 10 years, do the usd version.
 

ConfusedGoat

Well-Known Member
Joined
Dec 4, 2010
Messages
112
On the other hand, it is costly to do Forex transactions. You lose money on buying dollars. You lose money because of transaction fees. But the end result is dollars in the S&P 500.

Sure, there are increased forex charges but the other savings will likely make up for it. For example if you were to look at purchasing 50k of STX500 vs purchasing the underlying iSharse Core S&P directly.

The initial fees would be.

STX500:
Purchasing fees (via Easy Equities): 0.624%
Current Spread above mid-market: 0.26% (This does vary a lot would expect it to decrease as the fund gets bigger but think this is lower then normal as there were a few bids not by the market maker at the time I checked.)
Total: 0.884%



iShare:
Purchasing fees (via Interactive Broker): 0.055%
Forex charges (via Shyft): +- 1%
Total: 1.055

I left the spread off purchasing the underlying share directly as my understanding is that you would effectively be paying that through Satrix when they purchase the IShare cancelling it out. (If wrong spreads on international funds are a lot tighter due to their size).

The ongoing fees are also a lot less with a TER of 0.25% vs 0.07% and then capital gains will be less due to not paying on CGT on the forex movement. In the above example you will therefore make up the increased initial costs in about a year due to the TER.

Obviously then also need to take the fees into account when selling and bringing the money back.
 

SergioDomngos

Active Member
Joined
Feb 6, 2017
Messages
49
I've battled with this myself.

Most of not all of the local ETFs just track the index. So the growth should match that off the dollar based S&P 500. But you are still investing rands, and are subject to the swing of the value.

On the other hand, it is costly to do Forex transactions. You lose money on buying dollars. You lose money because of transaction fees. But the end result is dollars in the S&P 500.

Most of the time I end up going the dollar route.
I might not know enough, but the FX conversion fees on EE doesn't seem too costly, unless I'm missing something..
 

SergioDomngos

Active Member
Joined
Feb 6, 2017
Messages
49
Thanks, so I'd like to invest majority for at least 10 years, will go for the USD option as you suggested.

Then I'm also wanting to invest some of the capital for ~5 years. Not sure if I should look at a ETF for that or just keep it in a Unit Trust and get average gains...
 
Last edited:

GrootVoet

Well-Known Member
Joined
Mar 23, 2021
Messages
402
Ask your self 2 questions.

1) Do you have more faith in the SA economy or the US economy to grow over time?

2) Do you see the rand getting stronger or weaker against the dollar over the next few years?
 

SergioDomngos

Active Member
Joined
Feb 6, 2017
Messages
49
Ask your self 2 questions.

1) Do you have more faith in the SA economy or the US economy to grow over time?

2) Do you see the rand getting stronger or weaker against the dollar over the next few years?
1) U.S
2) I'd like to think weaker.
 

SergioDomngos

Active Member
Joined
Feb 6, 2017
Messages
49
I've battled with this myself.

Most of not all of the local ETFs just track the index. So the growth should match that off the dollar based S&P 500. But you are still investing rands, and are subject to the swing of the value.

On the other hand, it is costly to do Forex transactions. You lose money on buying dollars. You lose money because of transaction fees. But the end result is dollars in the S&P 500.

Most of the time I end up going the dollar route.
...
 
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