Investec S&P500 Digital Plus - Thoughts?

US stocks took a knock this week because of China trade war escalation. Probably not a bad time to invest in a S&P 500 based ETF (which is what I assume this is).
 
I am trying to understand what the business motivation for this is. I can only assume that Investec thinks there will be a major move in the Rand and wants to lock in the Dollar value now.

The fees are also quite a bit higher than a normal ETF tracking the sp500.

I would love to understand the business case internally at Investec for this product. It must be more than just fees.
 
Scooby_Doo said:
I am trying to understand what the business motivation for this is. I can only assume that Investec thinks there will be a major move in the Rand and wants to lock in the Dollar value now.

The fees are also quite a bit higher than a normal ETF tracking the sp500.

I would love to understand the business case internally at Investec for this product. It must be more than just fees.
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Yeah, they basically promise you S&P500 returns OR whatever their rate is, 11% I think it was, whichever is better. I don't know how that profits them.
 
Athos said:
US stocks took a knock this week because of China trade war escalation. Probably not a bad time to invest in a S&P 500 based ETF (which is what I assume this is).
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It is a structure and not an ETF. Works differently as it is a fixed investment which comes with capital protection, up to -40% in this case, while giving a guaranteed return, 44% in this case, if the index is positive by even just 0.1%. Sometimes they will cap the returns and other times, as with this one, they won't.

This is usually achieved through bonds and options although this one has a more complicated structure.
 
8BitLife said:
It is a structure and not an ETF. Works differently as it is a fixed investment which comes with capital protection, up to -40% in this case, while giving a guaranteed return, 44% in this case, if the index is positive by even just 0.1%. Sometimes they will cap the returns and other times, as with this one, they won't.

This is usually achieved through bonds and options although this one has a more complicated structure.
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Sure, but what is the business case here. How is Investec making money on this? There must be an angle?
 
8BitLife said:
It is a structure and not an ETF. Works differently as it is a fixed investment which comes with capital protection, up to -40% in this case, while giving a guaranteed return, 44% in this case, if the index is positive by even just 0.1%. Sometimes they will cap the returns and other times, as with this one, they won't.

This is usually achieved through bonds and options although this one has a more complicated structure.
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Thanks. Need to read before I post.
 
Scooby_Doo said:
Sure, but what is the business case here. How is Investec making money on this? There must be an angle?
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In these structures the business case is usually that the cost of buying/replicating/hedging the options is lower for the bank than the fees you are charged.

The business case for the investor is that you get offshore exposure and capital protection (assuming that the reference bank does not default in the interim). Having a credit reference entity in the middle is usually how the structuring bank beefs up the returns because it introduces a bit more risk into the whole transaction.
 
Jehosefat said:
In these structures the business case is usually that the cost of buying/replicating/hedging the options is lower for the bank than the fees you are charged.

The business case for the investor is that you get offshore exposure and capital protection (assuming that the reference bank does not default in the interim). Having a credit reference entity in the middle is usually how the structuring bank beefs up the returns because it introduces a bit more risk into the whole transaction.
Click to expand...

I did see that part, if they go bust the capital can be lost.
 
Scooby_Doo said:
Sure, but what is the business case here. How is Investec making money on this? There must be an angle?
Click to expand...

Without commenting on this particular product - I don't know it well enough - the way these usually work is that the product is index based, not return based. But the return on the S&P includes a dividend yield of about 2%, which you don't get with a pure index based product, but would get if you just bought an ETF.

So Investec get part of the upside in return for the performance guarantee. BTW, with these products there's also sometimes a component of how the base level of the index is determined; sometimes it's not quite what you might think. But I don't know whether that's the case here.
 
So the question is, would you go with something like this or a pure index fund.

It might come down to time, I have more than 2.5 years to invest so I am sticking with a normal index.
 
Scooby_Doo said:
So the question is, would you go with something like this or a pure index fund.

It might come down to time, I have more than 2.5 years to invest so I am sticking with a normal index.
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That is dependent on your risk profile. If you are close to retirement or already retired, you can't handle a market crash the same way someone in their 20s or 30s can since you no longer have the luxury of time to recoup those losses. For people like these, a structure is a good product as it comes with capital protection.

Structures are also good for you if you think there will be a market crash over the next few years and you would like to hedge against that risk regardless of your age.
 
8BitLife said:
That is dependent on your risk profile. If you are close to retirement or already retired, you can't handle a market crash the same way someone in their 20s or 30s can since you no longer have the luxury of time to recoup those losses. For people like these, a structure is a good product as it comes with capital protection.

Structures are also good for you if you think there will be a market crash over the next few years and you would like to hedge against that risk regardless of your age.
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Well, not this one, assuming we suffer a huge 40% crash from inception prices.
 
If we include 2001 and 2008 as the largest >40% events in recent memory. We are about due one.

But no one knows. Its a risk thing, can you sustain a 50% drop in your portfolio right now or in the next 5 years? No? Then better make sure you are not only in stocks.
 
The chart is actually there at the bottom of page 2. Was back tested from 1996 with 3,356 daily observations and includes both those 2 market crashes. Only 0.3% of the time would you have lost money. But ya, I wouldn't invest in this one either cause it is currency neutral.
 
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Not bad if your tax allowance on offshore exposure (tax wise) has been reached and you want some exposure to the S&P500
Granted, this whole structure is linked to the S&P500 Index and it's sitting close to all time highs (2857 points) at the time of writing.

Likely just capital preservation but it's still ZAR denominated which negates any currency exposure.
 
While the Digital Plus does offer investors exposure to the growth potential of the S&P500, its correct to say you don’t receive the dollar currency exposure
However the return received if the index is flat or positive is much higher in Rand than would be achieved were this to be priced in dollars.
Private investors do not make use of their allowance as this is inward listed on the JSE.
 
Investecsocialmedia said:
While the Digital Plus does offer investors exposure to the growth potential of the S&P500, its correct to say you don’t receive the dollar currency exposure
However the return received if the index is flat or positive is much higher in Rand than would be achieved were this to be priced in dollars.
Private investors do not make use of their allowance as this is inward listed on the JSE.
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Are you from Investec?
If yes, could you post more material on this product, like a brochure with different scenarios.
 
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