In uncertain economic times such as these with poor local market performance, a struggling South African economy and our rand free- falling from the sky, would it not be great for inves-tors to have a capital guaranteed rand-hedged product to turn to?
Although guaranteed products are by no means a “new” thing on the financial market, Brenthurst has never really considered using them as part of its service offering in the past due to the fact that market-linked investment products have always immensely outperformed the returns of guaranteed products. Not to mention the fact that they have been notoriously expensive as well as restricting investors from accessing the capital. However, in light of recent economic conditions, Brenthurst has decided to re-evaluate the use of structured products and have come across an exciting new offering from Investec.
Investec structured products provide the investor with the ability to tailor their returns to provide capital growth, income or even a combination of the two. Structured products can also be designed to provide positive returns even if the direct investments in a market would have produced a loss and could also deliver returns greater than deposit products or accounts. With expected market returns being as low as they are, this could definitely be something to look into.
Investec Corporate and Institutional Banking (ICIB) has just launched an exciting new offering of shares in China Seas Basket Limited. This company is incorporated in Guernsey and listed on the Bermuda Stock Exchange and offers South African investors the ability to earn pound-based returns while protecting their capital in full.
This listed Share will offer investors the ability to participate in a unique 4.3-year equity investment, where the investor will receive 200% GBP participation to the positive growth of a weighted basket of European and Asian indices (MSCI Taiwan, MSCI Singapore, Nikkei225, Hang Seng and Eurostoxx 50), up to an Index level of at least 20%, i.e. 40% maximum return in GBP (Equating to an Internal Rate of Return of 8.14% per annum).
The underlying international indices making up the investment will be linked to the European and Asian indices to provide investors with exposure to diversified sectors and companies. The Shares provide a Rand hedge as they are denominated in Australian Dollars however, the underlying principal preservation instru-ment and equity linked securitiy(ies) are in GBP. They provide currency diversification to the Rand and other major currencies and as such carry a small currency risk should currencies move in opposite directions.
South African investors who have GBP 8 000 to invest offshore would qualify to purchase shares in the China Seas Basket Limited, the closing date for which is March 3, 2016. The investment matures on July 10, 2020.
Shares can be purchased using offshore allowances, disclosed foreign assets, international assets held by non-South African investors or an asset swap. The company has a Guernsey tax exemption certificate, allowing South African tax authorities to receive more revenue when local investors elect to sell their shares, since none of the profits are paid away to foreign tax authorities. Favourable tax treatment of offshore investments locally means that South African investors also benefit.
Profits on the product are locked in at each phase, meaning that when new shares are issued in the company, whatever investors have earned up to that point is guaranteed should they elect to hold the shares for a second phase and not sell them.
Since Investec has guaranteed investor capital through its bond issuance, the only risk for investors would be Investec going insolvent. An important point to mention is that one should see this investment as only part of a well-diversified portfolio and investors would be wise not to invest all their capital into one geograph-ically-limited product, even if it is guaranteed.
Summary Of The Offering:
- A 4.3-year growth investment linked to the performance of the Basket of Indices.
- 2 times geared exposure to the growth in the Basket of Indices subject to an indicative maximum return of 40% in GBP (Sterling).
- 100% Principle preservation
- Minimum investment of AUD 15 000 OR GBP 8 000
- Daily Liquidity
- The investment opportunity closes on the 3rd of March 2016 and will mature in July 2020, but the Company reserve the right to extend this with a further 6 months, if deemed necessary.
- The fees for this product consist of a once-off upfront fee of up to 2% plus VAT. The upfront fee is deducted from the gross amount invested so a net investment allocation is made. The on-going advice fees of 0.60% are taken annually on the anniversary of the investment. The total expense ratio therefore is 1.34% per annum.
Although this product may not be suitable for all investors, at Brenthurst we certainly believe there may be a place for a structure product in the overall portfolios of most clients, especially the risk-averse and those clients concerned with market returns for the next five years. For investors who wish to sell their shares before the maturity date, an early exit fee of 1.25% less any administration and applicable banking fees will be charged, but at least one has liquidity in case of an emergency, which is assuring.
Should you be interested in taking advantage of the limited-offer (closing 3 March 2016) please do not hesitate to contact your Brenthurst financial advisor without delay.