Standard Bank SharePlus

Have heard the radio ads.

Sound similar to investing in the JSE Top 40 similar to a Top40 ETF but with differences:

Upside compared to ETF: no fees and no capital loss

Downside compared to ETF: not very liquid and maximum earned limited to 25% (unlikely that the Top 40 with grow that much though)


Cant see if the dividends are reinvested in the account or what happens with them.
 
This sounds a little fishy. I think however I have figured out how they make their money out of it. The minimum amount it R25K and I am guessing some will invest a lot more. Either way if their is no growth you only earn 2.5% over the 24 months which is nothing. That works out to just over 1% annually. Compare that to investing R25000 with Standard banks 48 month fixed deposit and you would be earning 7.65% per annum so in total about 15.5% compared to that 2.5%.

I am guessing that Standard bank never actually invests your money in the stock market. The wording never implies they do or that you own the shares, only that you earn interest relative to the market moves. Hence they are probably using a combination of options and futures to hedge themselves (hence guaranteeing the initial investment) and just loaning out the bulk of the money at their normal loan rates making their money there. So to give an example say you give them 25K. They will use a portion of your money (say 8%) to purchase a combination options for 48 months time guaranteeing they can get at least R25000 in 48 months time. However if the market moves up they don't exercise the call option and instead use the put option to get the full value. If the share market goes up 15.5-25% then you win as its better than fixed deposit. If it makes more than 25% you still get 25% but the bank wins any additional gains. If the market is stagnant or only up to 15.5% you loose a little compared to fixed deposit. Either way the bank will be winning as they will take the bulk of the 25K and will have used it in loans and probably returned enough to more than cover the costs of the hedges and still return a decent profit.

Personally the odds of the market going up more than 15.5% in the next 2 years seem very slim to me and hence I doubt I would invest in this. Especially seeing as you are supposedly investing but are denied dividends as you never own the shares. Rather take that money and invest it yourself in the stockmarket but aim for 5 years instead of 2. Dividend return on Satrix40 ain't bad and SatrixDivi tends to return better than Satrix40 anyways so whatever the share performance dividends will tend to be at least 5% per year. Add to that the potential up side of the share market in a few years time and I prefer investing myself to this scheme. If you need the safety of the guarantee on your initial investment rather go with a 2 year fixed deposit where you know for a fact you will get at least 15.5% on your R25K.

Bear markets tend to last about 10 years and this one started in 2008 so I suspect that Standard bank will make a killing on this scheme as the markets could well remain stagnant over the next 48 months meaning they get to loan out your money at their full rate and they get to pay you less than 1% per annum. Seriously. The bank can make profit off your 25K in a fixed deposit while paying you 15.5% interest. Imagine how much they make when they are only paying you 1%?

Yep, the risk reward of this whole scheme seems very skewed towards the bank. You are betting essentially that the market will rise between 15% and 25% otherwise you are the net looser here.
 
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