Wealth Accelerator ESP. Presentation and FAQ

Transcription

1 Wealth Accelerator ESP Presentation and FAQ

2 What is the Investec Wealth Accelerator Equity Structured Product ( ESP )? A 4 year equity investment where a 63% return in rand represents an Internal Rate of Return ( IRR ) of 13% per annum in rand approximately 7.5% above Consumer Price Index ( CPI ) inflation of 5.5% is paid to the investor if the Euro Stoxx 50 Index ( Index ), is one point higher at maturity than where it started on Trade Date The return will be paid to the investor in rand therefore no currency risk IBL will target a digital return of 63%, however due to the volatile nature of the underlying assets, we reserve the right to trade as long as the digital return is 57% or higher and not to proceed on Trade Date should the digital return be below 57% (IRR 11.9% - this represents a 6.4% real return per annum (11.9% less 5.5% inflation)). 100% capital protection in rand on the full investment amount if held to maturity Daily liquidity in normal market conditions. Investec makes an active daily market in the investment on the JSE with a bid to mid-spread of 1% Minimum investment amount is from R cash and increments of R Issuer: Investec Bank Limited ( IBL ) Credit Reference Entity: BnP Paribas SA ( BnP ) Current Index price: As at 14 July 2017 = Bloomberg code: SX5E 2

3 What is the pay-off profile at expiry in rand? ESP return in rand 180% 170% 160% 150% Wealth Accelerator ESP 63% return in rand 140% 130% 120% SX5E return 110% Investor initial investment amount is 100% principal protected in rand, at maturity 100% 40% 90% 50% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% 160% 170% 180% 80% Index return 70% 60% 50% 3

4 What returns can investors expect? Example of Index returns at maturity* Capital invested ESP returns ESP investment value at maturity Index returns 75% R % rand return R Index returns 7% R % rand return R Index returns 32% R Principal protection R * Theoretical returns for illustrative purposes 4

5 Eurozone commentary Euro area economic activity has been strengthening in recent quarters, both in terms of the pace of growth and its breadth across sectors and the 19 members of the single currency area. Supporting this has been the continued strength of household spending and firming investment. We expect this dynamic to continue looking forward and envisage Eurozone expansion averaging around 2% over a three to five year horizon. Such an outturn would see the Eurozone recording some of the fastest growth rates amongst the developed economies and present an attractive macroeconomic backdrop for corporates. We also tend to the view that the world growth backdrop will be positive for Euro area exporters given our expectation of a pickup in the global economy in the medium term. Meanwhile the undervaluation of the euro should also help to support the competitiveness of Eurozone exports, at least for the time being. Monetary policy within the Euro area has been very accommodative in recent years with policy interest rates at record lows and even negative in the case of the deposit rate (-0.40%). The ECB has also undertaken an asset purchase programme, which to date has bought 1.9trn worth of bonds. Looking across the next 5 years we expect the ECB to undertake a very gradual normalisation in policy, with the first rise in interest rates not coming until Q2 2019, with a slow pace of tightening thereafter. European political risks were a key theme for However those risks have receded following election results in the Netherlands and France, where far right parties were defeated. Meanwhile polls ahead of the German Federal Election due in September suggest that Angela Merkel will be returned as Chancellor. We note though that some risks of populist party success remain in Austria and Italy where elections are both due within the next 12 months. Lastly, it is worth noting that the systemic risks that were posed by countries such as Greece during the depths of the Euro crisis have abated as economic and financial conditions have improved, economic reforms have been undertaken and the Euro area now has a permanent rescue fund (the ESM) in place. Euro Area Outlook, Investec (London), June

6 Euro Stoxx 50 Index return 31 December 1986 (inception) to date Index (SX5E) returns Dec 1986 Jul 1987 Jan 1988 Jul 1988 Jan 1989 Jul 1989 Jan 1990 Jul 1990 Jan 1991 Jul 1991 Jan 1992 Jul 1992 Jan 1993 Aug 1993 Feb 1994 Aug 1994 Feb 1995 Aug 1995 Feb 1996 Aug 1996 Feb 1997 Aug 1997 Feb 1998 Aug 1998 Feb 1999 Aug 1999 Mar 2000 Sep 2000 Mar 2001 Sep 2001 Mar 2002 Sep 2002 Mar 2003 Sep 2003 Mar 2004 Sep 2004 Mar 2005 Sep 2005 Mar 2006 Oct 2006 Apr 2007 Oct 2007 Apr 2008 Oct 2008 Apr 2009 Oct 2009 Apr 2010 Oct 2010 Apr 2011 Oct 2011 Apr 2012 Oct 2012 May 2013 Nov 2013 May 2014 Nov 2014 May 2015 Nov 2015 May 2016 Nov 2016 May 2017 Data source: Bloomberg 6

7 Euro Stoxx 50 Index Top 20 companies Anheuser-Busch InBev SA/NV Unilever NV LVMH Moet Hennessy Louis Vuitton SE SAP SE TOTAL SA Industria de Diseno Textil SA Siemens AG Sanofi L'Oreal SA Bayer AG Banco Santander SA Allianz SE BASF SE BNP Paribas SA Deutsche Telekom AG Daimler AG Volkswagen AG ING Groep NV AXA SA Airbus SE 3.72% 3.71% 3.69% 3.65% 3.51% 3.49% 3.43% 3.21% 2.89% 2.59% 2.59% 2.59% 2.58% 2.30% 2.25% 1.94% 1.91% 1.88% 4.80% 6.66% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% Data source: Bloomberg 7

8 Euro Stoxx 50 Index industry sector weightings The Index covers 50 stocks from 11 Eurozone countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain Banks Capital Goods Household & Personal Products Food Beverage & Tobacco Pharmaceuticals, Biotechnology & Life Sciences Automobiles & Components Telecommunication Services Energy Insurance Consumer Durables & Apparel Materials Utilities Software & Services Retailing Health Care Equipment & Services Semiconductors & Semiconductor Equipment Transportation Technology Hardware & Equipment Diversified Financials Media Food & Staples Retailing Real Estate 2.21% 1.68% 1.27% 1.09% 1.03% 0.83% 0.80% 0.76% 3.81% 3.71% 6.79% 6.29% 5.58% 5.36% 5.28% 4.88% 4.76% 4.70% 8.41% 8.33% 11.31% 11.11% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% Data source: Bloomberg 8

9 How would the ESP have performed in the past? Summary of findings (daily back-testing of 4 year rolling returns since inception of the Index) Produced positive returns 70.5% of the time, i.e. paid a 63% return in rand Offered principal protection 29.5% of the time Index (SX5E) 4 year rolling returns 250% 225% 200% 175% 150% 125% 100% 75% 50% 25% 0% -25% -50% -75% Dec 1990 Jul 1991 Jan 1992 Jul 1992 Jan 1993 Jul 1993 Jan 1994 Jul 1994 Jan 1995 Jul 1995 Jan 1996 Jul 1996 Jan 1997 Aug 1997 Feb 1998 Aug 1998 Feb 1999 Aug 1999 Feb 2000 Aug 2000 Feb 2001 Aug 2001 Feb 2002 Aug 2002 Feb 2003 Aug 2003 Mar 2004 Sep 2004 Mar 2005 Sep 2005 Mar 2006 Sep 2006 Mar 2007 Sep 2007 Mar 2008 Sep 2008 Mar 2009 Sep 2009 Mar 2010 Oct 2010 Apr 2011 Oct 2011 Apr 2012 Oct 2012 Apr 2013 Oct 2013 Apr 2014 Oct 2014 Apr 2015 Oct 2015 Apr 2016 Oct 2016 May 2017 Data source: Bloomberg 9

10 What dividends am I forfeiting by investing in this product as opposed to the Index? The db x-trackers ( DBXEU ) has been used as the benchmark for this analysis as it tracks the European economy DBXEU trackers Current 12m Dividend Yield 3.63% Less Annual Management Fee -0.86% Net 2.77% Less 20% tax -0.55% Net Dividend 2.22% Compounded for 4 years 9.16% Net dividend forfeiture is 9.16% in Euro ETF trackers provide no capital protection, unlike the ESP Data source: Bloomberg as at 6 June 2017 (ticker: DBXEU SJ Equity) 10

11 Immunization against the rand strengthening to the Euro The benefit of this investment is the immunization against the rand strengthening to the Euro, which has happened in numerous occasions in the past. Data source: Bloomberg - 01 April 1999 to 19 June

12 Rand Euro interest rate differential locked into the offering The digital level of 63% is a result of the ZAR and EUR yield curve differential which is shown below. The 4 year EUR swap rate is virtually zero versus the 4yr ZAR swap rate of 7.14% ZAR SWAP Euro Swap Data source: Bloomberg 12

13 EUR/ZAR forward curve for 4 years The Euro vs ZAR forward rates over the term of the offering can be seen below. The EUR/ZAR forward depreciation rate is approximately 27% over the projected 4 year term. The digital level of 63% is a result of this upward sloping forward curve Jun Jun Jun Jun-20 Data source: Bloomberg - 26 June 2017 to 25 June

14 Stress testing Simulated return of the investment over the 4 year investment term under the scenario of a positive and negative 40% Euro Stoxx 50 Index move, shown below. The simulation has been done under the assumptions of constant: Volatility (assuming that the volatility surface remains the same in the future as it is today, i.e. exclusion of forward volatility on the index) Interest rates Dividends Index level ESP inception value ESP end of Year 1 ESP end of Year 2 ESP end of Year 3 ESP at maturity end of Year % 100% 123% 135% 148% 163% 0% 100% 104% 113% 124% 100% - 40% 100% 84% * 88% 93% 100% The largest drop in the investment for a - 40% Index move is -16%* at the end of Year 1 The lowest investment amount is - 18% at the end of Year 1 if the Index drops to -100% i.e. the equity option is worthless Simulated returns for illustrative purposes 14

15 Product Break-even due to currency and index returns Investec have simulated a matrix showing various returns of a market linked investment of the Euro Stoxx 50 Index (ETF) in Euro (incl. of the net dividend) converted back into rand at three currency scenarios and to what the Investec product would have returned. The current Euro/ZAR spot is Index performance at maturity Net dividend Total Index return Euro/Rand 27% depreciation i.e. R18.65 Euro/Rand at current spot of R14.92 Euro/Rand 27% appreciation i.e. R10.89 Scenario % 9.20% % % % % 0% Scenario % 9.20% % 13.20% % % 0% Scenario % 9.20% 9.20% 38.60% 9.20% % 63% Scenario % 9.20% 28.30% 63.00% 28.30% -6.30% 63% Scenario % 9.20% 49.20% 89.40% 49.20% 8.90% 63% Investec Product Return Scenario 3 shows the index only needs to go up by 0.01% for the investor to receive a 63% return in rand Similarly, if the Index were to return 0.01% in a market linked investment of the Euro Stoxx 50 Index in Euro (incl. the net dividend), the rand would need to depreciate by some 50% to break even with the Investec product to produce the same 63% return in rand. Scenario 4 shows that if the Index returns % and the rand depreciates 27% against the Euro, the Index (incl. of the dividend) breaks even with the product to produce a 63% return in rand. 15

16 How do I access this payoff if I own Euro Stoxx 50 db x-trackers or ETFs? Investors are able to transfer their db x-trackers or ETF s (with a minimum value of R200, and increments of R thereafter) into the Wealth Accelerator ESP. The trackers must be transferred and settled into the Equity Structured Product Trust pledged account, held with Investec Securities Proprietary Limited ESP Trust, free of value via your stockbroker/wealth manager. The closing date to transfer db x-trackers or ETF s is 4 September Investors are able to retain beneficial ownership of their trackers and have the ability to access the Wealth Accelerator pay-off and principal protection through a derivative issued by IBL. It is important to note the ESP is in rand. 16

17 What tax will investors pay? The information provided in this brochure is general information and should not be construed as tax advice. Taxation legislation and its interpretation may change. For as long as an investor is the holder of an ESP, they will be the owner of ETFs. Section 9C of the Act deems receipts and accruals arising from the disposal of ETFs to be of a capital nature if the taxpayer was the owner of the equity share for a continuous period of at least 3 years immediately prior to the sale. The tax consequences for investors who elect to sell their ETFs before a period of 3 years has elapsed will be dependent upon individual circumstances and any profit realised from the sale may be subject to Income Tax/CGT. It is recommended that prospective investors seek independent professional legal, tax and accounting advice and consider the investment in the light of the Investor s particular circumstances. No responsibility is accepted by IBL for the treatment of any court of law, tax, banking or other authority in any jurisdiction of the investment and no undertaking, warranty or representation is given with regard to the outcome of any such investment. All opinions, statements and analysis expressed are based on information, which was current at the time of writing and from sources, which ISP believes to be authentic and reliable. What fees will investors pay? An annual distribution fee of 0.75% of the investment amount (inclusive of VAT) will be paid annually in advance to IBL and the Financial Advisor/Stockbroker/Wealth Manager for the 4 year investment term. 17

18 Financial Services Board ( FSB ) licence categories FSB Category 1 ( CAT1 ) and Category 2 ( CAT2 ) license holders qualifying criteria to write structured products: Listed products are exempt under the Financial Advisory and Intermediary Services Act ( FAIS ), however financial advisors/stockbrokers/wealth managers should be aware of their FAIS compliance responsibilities under the Johannesburg Stock Exchange( JSE ) rules for listed products; Where advice is being given, financial advisors/stockbrokers/wealth managers should ensure that they understand the underlying instruments and are able to provide advice on a "look through" basis; and The onus is on the financial advisor/stockbroker/wealth manager to ensure that they have the appropriate license to advise on structured products e.g. Investec Wealth Accelerator ESP CAT1 license holders 1.8 Securities and Instruments: Shares 1.11 Securities and instruments: warrants, certificates and other instruments acknowledging, conferring or creating rights to subscribe to acquire, dispose of or convert securities and instruments referred to in subcategories 1.8, 1.9 and Securities and instruments: Derivative instruments excluding warrants 1.14 Participatory interests in CIS s (Collective Investment Schemes) CAT2 license holders 2.5 Securities and instruments: Shares 2.8 Securities and instruments: warrants, certificates and other instruments acknowledging, conferring or creating rights to subscribe to acquire, dispose of or convert securities and instruments referred to in subcategories 2.5, 2.6 and 2.7 above 2.10 Securities and instruments: Derivative instruments excluding warrants 2.11 Participatory interests in CIS s (Collective Investment Schemes) 18

19 Contact us Please contact one of our product specialists for further information Brian McMillan Kate Langlois Japie Lubbe Carlo Accolla Lynn Bell Recent accolade > Best Distributor, Capital Protected > Best Performance, Africa 2016 Products in Africa 2016 > Best Distributor, South Africa 2016 > Best Distributor, Africa 2016 > Best Performance, South Africa 2016 > Best Distributor, Africa

20 Disclaimer The information contained in this communication is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. As product supplier, Investec is not in a position to have regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Investors should seek their own independent professional advise regarding the suitability of this ESP for their own particular investment purposes All illustrations, forecasts or hypothetical data are for illustrative purposes only and are not guaranteed. The sender accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this communication. Investec does not make representation that the information provided is appropriate for use in all jurisdictions or by all investors or other potential investors. Parties are therefore responsible for compliance with applicable local laws and regulations. Prospective investors should be fully aware of the risks involved in trading investment related products. Profits and benefits are dependent on the performance of underlying assets and other variable market factors and are not guaranteed. This product is not sponsored, endorsed, sold, or promoted by the Index or indices, as specified herein, or the relevant Index sponsor, being the corporation or other entity that (a) is responsible for setting and reviewing the rules and procedures and the methods of calculation and adjustments, if any, related to the relevant Index and (b) announces (directly or through an agent) the level of the relevant Index on a regular basis. No Index sponsor makes any representation whatsoever, whether express or implied, either as to the results to be obtained from the use of the Index and/or the levels at which the Index stands at any particular time on any particular date or otherwise. No Index or Index sponsor shall be liable (whether in negligence or otherwise) to any person for any error in the Index and the Index Sponsor is under no obligation to advise any person of any error therein. No Index sponsor is making any representation whatsoever, whether express or implied, as to the advisability of purchasing or assuming any risk in connection with entering into any transaction in respect of this product. Neither Investec nor the investor shall have any liability to the other for any act or failure to act by the Index sponsor in connection with the calculation, adjustment or maintenance of the Index. Investec has no affiliation with or control over the Index or Index sponsor or any control over the computation, composition or dissemination of the indices. Although Investec will obtain information concerning the indices from publicly available sources it believes reliable, it will not independently verify this information. Accordingly, no representation, warranty or undertaking (express or implied) is made and no responsibility is accepted by Investec as to the accuracy, completeness and timeliness of information concerning the indices. Corporate and Institutional Banking, a division of Investec Bank Limited. Reg. No. 1969/004763/06. An Authorised Financial Services Provider (FSP 11750) and registered Credit Provider (NCRCP9). A member of the Investec Group. Ref: SPIB19 18 July