When the the Investec Zebra wandered onto EasyEquities a few months ago with their Wealth Accelerator ESP, we helped you guys understand a bit more about what it would mean to invest in the structured product and you okes went crazy. But I thought it might help to go through what a structured product actually is in a bit more detail because personally, I’m a massive fan. What I liked the most about the Wealth Accelerator ESP was that it guaranteed your capital and allowed you to potentially get 63% after 4 years, (that’s 13% per year) AND you could invest as little or as much as you want thanks to #Easy! I think that’s a pretty sweet deal, especially for investors who are a little freaked out by market uncertainty.
Watch this video on the Investec Offshore Protected Share with Simon Brown, as I think it explains things quite nicely.
So what is a structured product anyway?
By definition a structured product is designed to facilitate highly customized risk-return objectives. This is accomplished by taking a traditional security, such as a bond or share, and replacing the usual payment features (e.g. periodic coupons, dividends, capital etc) with the performance of one or more different underlying assets.
In layman’s terms this basically means they are packaged investment strategies which contain pre-determined potential investment returns based on a set of criteria being achieved. Often the basis for the investment is to protect capital and then provide for potentially better returns than what could be achieved in the market.
Structured products generally share some common characteristics irrespective of which financial institution is issuing them:
- They have a fixed term – the pre-determined return or capital guarantee is only realized at maturity of this fixed period.
- The Capital Protection will either be a full, partial or conditional capital protection.
- Potential returns are predetermined and typically based on a set of criteria being met by the underlying asset. The asset is typically a basket of shares, an index, fund, commodity, currency, ETF or a combination of these.
Okay so how does it work and where does my money go?
- The issuer of the structured product (usually a bank and in a recent example Investec), will place a certain amount of your investment on deposit (in the latest example with BNP Paribas), which is then guaranteed to grow to the capital protected level at end of the fixed term.
- A further portion of your money will then be used to purchase an option (derivative) aimed at generating the investment return. The underlying asset on which the return is generated will be chosen at the outset, and will usually offer investors a higher percentage return than the actual underlying asset would provide if purchased directly. This is known as the participation in the returns (e.g. In the latest Investec ESP investors achieved 70% returns in Rands if the Eurostoxx 50 Index ended positive after a 4 year period). Investor returns at maturity will typically be calculated as: Capital protected amount + (underlying asset return * participation)
So why should you be interested in these products?
You can potentially achieve the same and if not better returns than the underlying market without taking the same level of risk. It is a great way of diversifying your investment returns and looking after your capital at the same time.
How is EASY making it EASY for me?
Ordinarily these products are only available to ‘sophisticated’ investors and generally have a high investment minimum which excludes a vast majority of South Africans. But as we are now able to offer them on EasyEquities all investors are able to get their piece for as little as they chose by simply subscribing - we do the rest.
As the latest addition to new Structured Porducs on Easy, the Offshore Protected Share product still carries the protected capital component over a given period, with the added advantage of offshore investment balance.