YOUR MONEY: The best option for US-based ETF exposure

Question:

What is the difference between purchasing ETFs in a US dollar or South African rand account? Which one is a better option for US-based ETF exposure?

— A Fat Wallet Facebook community member

Answer:

In some senses, there’s no difference. If you buy a locally listed S&P 500 ETF it will have exactly the same stocks in the same weightings as a US-listed S&P 500 ETF.

However, there are two important differences. First, the range offered in the US is much larger than locally — by a factor of about 15 times. For example you can find social media ETFs or those tracking lithium battery tech, neither of which is available locally.

Second is how tax is calculated. Locally you are taxed on the move in the basket of shares as well as any currency move. So if the index is up 10% and the rand weakens 10% you have 20% profit, all taxable. But if you had bought the same ETF in the US you are not taxed on the currency move, only the 10% move in the underlying basket of shares. So effectively you pay less tax if buying offshore.

— Simon Brown, Just One Lap

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