20 Sep 2018
Optimal Investment Growth Basket Limited removes offshore investing complexity
Given that South Africa only presents a minor portion of the investable assets in the world, there are significant opportunities for local investors to diversify their investments by looking offshore. However, many are intimidated by the challenges revolving around this process.
Japie Lubbe of Investec Structured Products says these concerns are not without merit as the process is a complicated and expensive one for those not familiar with it. “Take unit trusts for example. South Africa might have a thousand to choose from, but once an investor starts looking internationally, there are multiples of thousands available. This is not a simple exercise for the average person. There is simply too much uncertainty around who to contact and who to trust with significant financial investments.”
In these uncertain economic times, many have decided to keep their money in the bank. However, this cannot be a long term investment strategy. Most investors would appreciate that they should seek to diversify into other asset classes
“Yet, some are hesitant to go this route as preserving their capital remains of utmost concern. Yes, cash in a bank is not ideal, but the argument goes that it will still be there if shares come crashing down. This is where the Investec Optimal Investment Growth Basket Limited (OIGBL) comes in. This targeted five-year equity investment is linked to a basket of offshore indices namely 20% in the Nikkei225; 40% in the S&P500®; 25% in the Euro Stoxx 50 and 15% in the iShares MSCI Emerging Markets ETF” adds Lubbe.
The process is designed to make the offshore diversification exercise an easy and rewarding one for investors. As an illustrative example, you can invest $100 in one share that provides exposure to large international blue-chip shares. Even if the market crashes, you will still get $105 out, much like the interest in a bank account.
Offshore investing made accessible
“Some people may say that this investment is too good to be true. There is a natural hesitance to embrace something that provides good value. The design of the OIGBL is done in such a way that it removes the complexity out of the investment process,” says Lubbe.
It preserves the principal amount plus a minimum of five percent return in USD if held to maturity (5 years). This minimum return is created through the purchase of a subordinated debt instrument issued by Investec Bank Limited, and the minimum return is dependent on Investec performing its obligations under this instrument.
“At a time when many feel local investments offer limited growth opportunities, this offering provides a good platform for sophisticated investors to expand on their strategies and get access to new markets. And by providing them with protection against market volatility, Investec is seeking to deliver the best value from both worlds,” concludes Lubbe.
In terms of structuring the solution, Invest Bank is the product supplier and investment advisor to the board of OIGBL. The solution has all costs built-in where returns are clear of fees and other expenses.
Additionally, claims for payment against the debt issuer will be sub-ordinated to the claims of more senior creditors of the debt issuer. Essentially, this means that the senior creditors will be paid first, and OIGBL will only be paid by the debt issuer from what is available (if any) after such payments were made in full.
To read more about OIGBL, please visit www.investec.com/invest.
About Investec Corporate and Institutional Banking and Investec Structured Products
Investec Corporate and Institutional Banking provides a wide range of products, services and solutions to select corporate clients, public sector bodies, financial institutions and private investors. The division undertakes the bulk of Investec’s proprietary trading activities, as well as all non-private client deposit taking, corporate and public-sector lending, project finance, acquisition and leveraged finance as well as advisory and structuring activities. The division has eight product teams that are divided equally between banking activities and financial markets activities. www.investec.co.za/ICIB
Since its inception in October 2002, Investec Structured Products have afforded investors the ability to tailor their returns to provide for capital growth, income or a combination of the two while limiting downside risk. Structured products can also be designed to provide positive returns, when direct investments in the markets would have produced a loss, and they could also deliver returns greater than deposit products. www.investec.co.za/ISP