Braam Bredenkamp | Financial Advisor | GraySwan | mail me |
The recent announcement of South Africa’s grey listing has compounded an already volatile market and has introduced more administrative complexity when investing offshore.
Onerous due diligence processes and verifiable information may be required creating delays with offshore investments.
Notwithstanding the risks, optimally constructed offshore structured products are an appealing investment option as they reduce the risk of market timing and can provide partial or full capital protection, allowing investors to obtain exposure to equities and commodities in a risk-controlled manner.
Structured products
Structured products are pre-packaged fixed-term investments that provide private investors with easy access to offshore equity and commodity markets, with a pre-defined risk and return profile over a pre-defined investment period.
The tax implications for this product may vary depending on the term of the investment, with capital gains tax applying unless the investor surrenders early, in which case it may be taxed as income. Structured products can be invested through vehicles such as sinking funds or endowments, which provide tax and estate duty benefits.
Any well-balanced and diversified investment portfolio can be curated with structured products. During uncertain times capital protection of any kind is a sought-after benefit. This, coupled with the possibility of an enhanced investment return, is an attractive combination.
A robust research process of various structured product options that complement clients’ traditional offshore equity and commodity investment portfolio holdings is needed to proactively and continuously offer structured products for clients.
We have an established partnership with a Swiss-based platform with an investment grade credit rating that three levels higher than South Africa’s top-rated banks. This affords us the flexibility to select any level of capital protection, along with a guaranteed or non-guaranteed investment return, linked to a specific underlying offshore asset.
With the use of a world-class offshore trading platform, we provides access to bespoke structured products that are tailored to the specific needs of their clients. The range of underlying assets to these product options available is extensive and includes various indices, instruments (i.e. Exchange Traded Funds and Actively Managed Funds), single stocks, or a combination of all.
Potential risks
Any investment does bring with it potential risks such as counterparty, credit and liquidity risks. Additionally, structured products do not pay dividends.
The certificate offers a 200% participation in the positive performance of the underlying offshore asset. The performance is capped at 125.11% of the initial level. This means that even if the underlying offshore asset returns more than 25.11% during the investment term, the investor’s maximum return would be 50.22% (25.11% return x 200% participation).
On the downside there is only a 50% participation, meaning that if the underlying offshore asset loses 10%, the investor only loses 5%, etc.
*Please note that these examples are based on a very specific set of underlying offshore assets and other factors to create these specific pay-off profiles
We can analyse and research various structured products offered by the market and have the capabilities to tailor-make such product options. With such expert guidance, clients are equipped with the freedom of choice during uncertain times.
