On 12 June 2024 the Federal Reserve held its ground on interest rates, again deciding not to cut as it continues a battle with inflation that is proving difficult to win.  The federal funds rate has been between 5.25% - 5.50% since July 2023, when the Fed last hiked and took the range to its highest level in more than two decades.  Jerome Powell recently noted that it will likely take longer than expected for the Fed to gain confidence that the US is on a sustainable path down to 2% inflation.  The comment strongly suggests that US interest rates will stay higher for longer.

Similarly, on 8 May the Bank of England’s Monetary Policy Committee (MPC) again opted to maintain the Bank Rate at 5.25%. As a result, First World interest rates will likely remain elevated for some time, particularly in the US where economic growth remains robust. Investors are therefore still able to achieve attractive hard currency returns from low-risk investments – an investment opportunity that has been missing for the past 15 years.

To help investors take advantage of this opportunity in the most tax and cost-efficient way possible, Marriott has launched the Smart International Income Portfolio (SIIP) – a simple, low-cost investment for conservative investors looking to achieve hard currency returns in excess of bank deposits in either US Dollars or Sterling. The two portfolios only hold liquid, investment grade instruments and yield 5.7% and 5.2% respectively. 

Importantly, all interest-bearing assets are held via accumulating ETFs and funds. This is highly tax efficient for South African investors as the income is automatically retained within the portfolios without incurring tax. If capital is required, the investor can simply repurchase the required amount. Although a tax charge is triggered at this point, it will be subject to capital gains tax as opposed to income tax – providing a large tax saving (up to 27%) for individual South African investors.

Looking forward, although major central banks are expected to begin cutting rates later this year, the trajectory is likely to be gradual, with interest rates remaining in restrictive territory until inflation is sustainably back at their 2% targets. As a result, Marriott’s SIIP is well placed to provide investors with attractive hard currency yields in a highly cost and tax efficient way for the foreseeable future.  

The two SIIP portfolios can be accessed via the International Investment Mandate (using your annual individual offshore allowance).

Smart International Income Portfolio:

• Smart Dollar Portfolio (USD)
• Smart Sterling Portfolio (GBP)

Caption:  Scott Cooper is an Investment Professional at Marriott