Investec Emerging Markets Digital Plus Presentation February 2018
What is the Investec Emerging Markets Digital Plus Equity Structured Product ( ESP )? A 3.5-year equity investment linked to the performance of the ishare MSCI Emerging Markets ETF (EEM US Equity). The return will be paid to the investor in rand therefore no currency risk. Earn a minimum 35% digital return in ZAR if the basket of ETFs go up by as little as 0.1% at maturity, plus unlimited upside above 35% Reference ETF: ishares MSCI Emerging Markets ETF (EMM US Equity) Current ETF price: 31 January 2018 = 50.96 JSE code: SPIB22 100% downside protected at maturity in ZAR provided the ETF does not close down more than 30%. The Digital Plus ESP is a credit linked ESP where the investor takes credit risk on both Investec Bank Limited ( IBL ) and FirstRand Limited ( FSR ). IBL is the product supplier, liquidity provider, issuer and market maker. The ESP is a listed instrument on the JSE and can be purchased via a stockbroking account using rand. Minimum investment amount is from R50 000 cash and increments of R10 000. 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% 2
What is the pay-off profile at expiry in rand? Return 180% 170% 160% 150% Emerging Markets Digital Plus 140% 130% 120% 110% ishare MSCI Emerging Markets 100% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% 160% 170% 180% 90% 80% 70% 60% 3
What returns can investors expect? ETF Basket returns at maturity* Initial Rand amount invested Digital Plus ESP investment value at maturity 75% R100 000 R175 000 27% R100 000 R135 000 12% R100 000 R135 000-21% R100 000 R100 000-32% R100 000 R68 000 * Theoretical returns for illustrative purposes 4
Emerging Market commentary Growth for both EMs and DMs is running at 3.6% yoy, We expect global growth of 4% for 2018 Global growth above 3.5% typically sees strong commodity price growth; we expect at least 10% over the next year From 1996 EM equities have never underperformed DM equities over a calendar year that has seen a rise in commodity prices EM earnings growth has averaged 19% in years when global growth has been above 3.5% vs 0% in years when global growth has been below 3.5%. In addition EMs frequently rerate on large earnings growth The improving global backdrop has been reflected in record low EM CDS spreads. However, the 12m forward P/E that DMs trade at relative to EMs is near the highest since 2004. We struggle to reconcile this and remain overweight EM equities vs DM This disconnect is particularly exaggerated in SA and we remain overweight EM nominal bonds and SA nominal bonds in particular, this should also provide some level of support for Rand The improving global backdrop coupled with increased political stability will see growth tick up in SA even though business confidence currently remains near record lows Source: Investec Bank Limited Chris Holdsworth 5
ishare ETF return 2003 (inception) to 2018 Data source: Bloomberg 6
ishare ETF country exposure as of February 9, 2018 Country % of Market Value China 29.71% Korea (South) 14.26% Taiwan 11.31% India 8.53% Brazil 7.36% South Africa 6.74% Russian Federation 3.52% Mexico 2.99% Thailand 2.40% Malaysia 2.36% Indonesia 2.28% Poland 1.32% Geographic exposure relates principally to the domicile of the issuers of the securities held in the product, added together and then expressed as a percentage of the product s total holdings. However, in some instances it can reflect the country where the issuer of the securities carries out much of their business. Data source: ishares by BlackRock 7
ishare ETF Top 10 companies at February 9, 2018 Ticker Name Sector Country 700 TENCENT HOLDINGS LTD Information Technology China 5.53 Weight (%) BABA ALIBABA GROUP HOLDING ADR REPRESEN Information Technology China 3.79 005930 SAMSUNG ELECTRONICS LTD Information Technology Korea (South) 3.71 2330 TAIWAN SEMICONDUCTOR MANUFACTURING Information Technology Taiwan 3.63 NPN NASPERS LIMITED N LTD Consumer Discretionary South Africa 2.01 939 CHINA CONSTRUCTION BANK CORP H Financials China 1.55 1398 INDUSTRIAL AND COMMERCIAL BANK OF Financials China 1.1 BIDU BAIDU ADR REPTG INC CLASS A Information Technology China 1.10 941 CHINA MOBILE LTD Telecomm Services China 1.09 2318 PING AN INSURANCE (GROUP) CO OF CH Financials China 0.98 Data source: ishares by BlackRock 8
ishare ETF industry sector weightings 23.26 26.4 Information Technology Financials 10.05 Consumer Discretionary 7.35 7.30 6.20 5.10 4.53 2.89 2.32 2.19 1.12 Materials Energy Consumer Staples Industrials Telecommunication Services Real Estate Health Care Utilities Computers - Software Data source: ishares by BlackRock 9
How would the Digital Plus have performed in the past? 3,855 rolling 3.5 year periods from 2003 to date have been tested The product return is uncapped from 35% Positive product returns achieved 70.6% of the time Average product returns achieved 42.50% of the time Capital returned 29% of the time, no capital losses would have been incurred Maximum return 226.01% (2003 2007) 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Normal Distribution of Returns 30.87% 29.31% 26.28% 5.78% 2.33% 2.52% 2.75% 0.16% 0% 35% 35% - 70% 70% - 105% 105% - 140% 140% - 175% 175% - 210% 210% - 245% Data source: ishares by BlackRock 10
ishare ETF performance vs. Product performance 3,855 rolling 3.5 year periods from 2003 to date have been tested Product protected capital in negative periods of growth Return is uncapped during positive periods of growth ETF (xishares MSCI Emerging Markets ETF (EMM US Equity) 3.5 year rolling returns 250.00% 225.00% 200.00% 175.00% 150.00% 125.00% 100.00% 75.00% 50.00% 25.00% 0.00% -25.00% -50.00% Index Growth Digital Payoff Barrier Level Data source: Bloomberg Jan 25, 2018 11
Investment Product Stress Testing Investec simulated the return of the investment over the term of the product under the scenarios of a positive and negative move in the ishare MSCI Emerging Markets Exchange Traded Fund, 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 ETF), Interest rates Dividends As a % of the initial investment amount: Index level Inception End of 1yrs End of 2yrs End of 3yrs End of 3.5yrs 50% 100% 134% 140% 146% 150% 15% 100% 114% 117% 125% 135% 0.01% 100% 102% 107% 115% 135% -15% 100% 90% 93% 97% 100% -50% 100% 69% 73% 81% 50% Theoretical returns for illustrative purposes 12
What dividends am I forfeiting by investing in this product as opposed to the Index? ishare ETF trackers in USD Current 12m Dividend Yield 2.73% Less Annual Management Fee 0.73% Net 2.00% Less 20% tax 0.55% Net Dividend 1.45% Compounded for 3.5 years 5.17% As the Satrix MSCI Emerging Markets ETF does not have a dividend yield history as yet, we have used the ishares MSCI Emerging Markets ETF as a proxy in this example for the Dividend Yield Net dividend forfeiture is 5.17% in USD over the 3.5 years ETF trackers provide no capital protection, unlike the ESP Data source: Bloomberg 13
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. 14
What fees will investors pay? A distribution fee of 1.25% (inclusive of VAT) will be paid in year 1 and 0.75% in years 2 and 3 will be paid annually in advance to the Financial/Investment Professional. Note: All fees, including JSE listing costs and licensing costs, have been priced into the product and will not affect the investor s return. Important dates Closing date Trade date Listing date Maturity date 23 March 2018 28 March 2018 13 April 2018 28 September 2021 15
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 Emerging Markets Digital Plus 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 1.10 1.13 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) 16
Contact us Please contact one of our product specialists for further information Brian McMillan +27 11 291 3180 brian.mcmillan@investec.co.za Kate Langlois +27 11 286 9450 kate.langlois@investec.co.za Japie Lubbe +27 21 416 3307 japie.lubbe@investec.co.za Carlo Accolla +27 21 416 3316 carlo.accolla@investec.co.za Lynn Bell +27 21 416 3328 lynn.bell@investec.co.za Recent accolades 17
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 ETF or indices, as specified herein, or the relevant ETF 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 ETF and (b) announces (directly or through an agent) the level of the relevant ETF on a regular basis. No ETF sponsor makes any representation whatsoever, whether express or implied, either as to the results to be obtained from the use of the ETF and/or the levels at which the ETF stands at any particular time on any particular date or otherwise. No ETF or ETF sponsor shall be liable (whether in negligence or otherwise) to any person for any error in the ETF and the ETF Sponsor is under no obligation to advise any person of any error therein. No ETF 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 ETF sponsor in connection with the calculation, adjustment or maintenance of the ETF. Investec has no affiliation with or control over the ETF or ETF 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. 12.02.2018 18