Investec Wealth Accelerator Presentation 10 May 2018
What is the Investec Wealth Accelerator Equity Structured Product ( ESP )? A 3 year and 8 months equity investment linked to the performance of the FTSE/JSE Capped Top 40 Index. Earn one and a half times geared exposure in the Index to a cap of 40%, giving a maximum return of 60% in Rand which equates to a maximum potential IRR of 13.70% per annum JSE code: SPIB23 First 20% downside protected at maturity in Rands, provided no credit event has occurred in respect of the Credit Reference Entity The ESP is a credit linked ESP where the investor takes credit risk on both Investec Bank Limited ( IBL ) as issuer and FirstRand Bank Limited ( FSR ) as credit reference entity 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 R100 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
FTSE/JSE Capped Top 40 Index The FTSE/JSE Capped Top40 Index is a capitalization weighted index created and managed by the JSE Limited (JSE) and the FTSE Group (FTSE). The index is similar to the FTSE/JSE Top 40 Index with respect to the list of constituents and only differs by capping the weighting to 10% The index was launched in July 2003 and was created to allow investors the opportunity to monitor the impact of reducing the weightings of South Africa s largest companies within the FTSE/JSE Top 40 Index to 10% to allow for a more diversified index Currently only Nasper s weighting has been reduced from 21.50% Capping Methodology Capping is applied at the quarterly review as part of the normal FTSE/JSE Africa Index Series Quarterly Index Review where a flat capping of 10% is applied to each constituent of the FTSE/JSE Top 40 Index. Capping is a mathematical process that follows the FTSE capping methodology 3
What is the pay-off profile at expiry in rand?* Return 180% 170% 160% 150% 140% 130% 120% 110% 100% 50% 90% 60% 70% 80% 90% 100% 110% 120% 130% 140% 150% 160% 170% 180% 80% 70% 60% 50% Investec Wealth Accelerator FTSE/JSE Capped Top 40 Index * Assumes no credit event has occurred 4
What returns can investors expect? Index returns at maturity* Initial capital amount invested ESP returns ESP investment value at maturity 75% R100 000 60.0% (max level 1.5 x 40%) R160 000 42% R100 000 60.0% (max level 1.5 x 40%) R160 000 35% R100 000 52.5% (1.5 x 35%) R152 500-18% R100 000 0% (capital protected) R100 000-30% R100 000-10% (-30% + 20% capital protection) R 90 000 * Theoretical returns for illustrative purposes 5
Commentary on South African Equities Upward revision to South African ( SA ) GDP growth forecasts Strong global growth and trade are to support South African exports and income. Household spending is expected to remain the key driver of growth. Real disposable income is forecast to grow at a faster pace in 2018 owing to a benign inflation outlook The rise in real income growth has seen retailers rally significantly towards the back end of 2017. As long as real incomes are expected to continue to grow by +-2%, we should see continued strong performance from SA Equities. Increasing business confidence should translate into employment gains and a further recovery for SA consumers. Aggregate SA Equities Market is still well priced (please refer to slide 8). Sources: Strategy Update April 2018, Investec Securities Research, Chris Holdsworth South Africa economic and fixed income dynamics, April 2018, Investec Corporate and Institutional Banking, Tertia Jacobs 6
JCAP40 price graph 2003 (inception) to 2018 Data source: Bloomberg 7
Price to Earning Ratio Analysis Since Bloomberg published the PE data (2005), the current PE ratio of 14.73 is 16.3% lower than its historic long term average of 17.61. The Capped Top 40 PE trades at a lower PE to the Top 40 Index which is currently 17.4.
Capped Top40 Index vs. Top 40 Top Ten Shares Ticker Name Sector Capped Top 40 Weight (%) Top 40 Weight (%) Difference in weighting (%) CFR Compagnie Financiere Richemont AG Consumer Goods 10.95%* 9.43% 1.52% BIL BHP Billiton Basic Materials 9.53% 8.21% 1.32% NPN Naspers Consumer Services 8.83% 21.49% -12.66% SBK Standard Bank Group Financials 5.29% 4.55% 0.73% AGL Anglo American Basic Materials 5.23% 4.50% 0.73% SOL Sasol Basic Materials 4.56% 3.93% 0.63% MTN MTN Group Telecommunications 4.11% 3.54% 0.57% FSR FirstRand Limited Financials 4.06% 3.50% 0.56% OML Old Mutual Financials 3.77% 3.25% 0.52% BTI British American Tobacco PLC Consumer Goods 3.41% 2.94% 0.47% Weighting has increased after the previous quarterly rebalancing date, hence it is currently more than 10% Data source: JSE 9
Index industry sector weightings 3.35 Health Care 4.44 Industrials 5.86 Telecommunications 24.89 Basic Materials 28.19 Financials 33.25 Consumer Goods Data source: JSE 10
Capped Top 40 vs. product performance 2,771 rolling 3 year and 8 month periods from 2003 to date have been tested (inception of the index) Positive product returns achieved 99.7% of the time Capital returned 0.3% of the time, i.e. no capital losses would have been incurred Average product return was 46.9% or 11.08%pa for the investment period of 3 year & 8 months The worst 3 year and 8 month return was -3.9% FTSE/JSE Capped Top40 3 year & 8 month rolling returns 220% 200% 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% -20% -40% Feb 2007 Feb 2008 Feb 2009 Feb 2010 Feb 2011 Feb 2012 Feb 2013 Feb 2014 Mar 2015 Mar 2016 Mar 2017 Mar 2018 Wealth Accelerator 3yr & 8 mth Returns FTSE/JSE Capped Top40 3yr & 8mth Returns Data source: Bloomberg 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 Index, 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 As a % of the initial investment amount: Index level End of 1yrs End of 2yrs End of 3yrs End of 3 yrs 8 months 50% 127% 137% 149% 160% 25% 118% 126% 133% 137.5% -15% 91% 93% 95% 100% -40% 71% 74% 78% 80% Theoretical returns for illustrative purposes 12
What dividends am I forfeiting by investing in this product as opposed to the Index? FTSE/JSE Capped Top 40 Index Current 12m Dividend Yield 3.31% Less Annual Management Fee* -0.45% Net 2.86% Less 20% tax -0.57% Net Dividend 2.29% Compounded for 3 years and 8 months 8.65% * Assumed to be the same as the Satrix 40 ETF Total Expense Ratio 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 the ESP, they will be the owner of a basket of units in an exchange-traded fund being the Satrix 40 ETFs. Section 9C of the Act deems receipts and accruals arising from the disposal of an exchange-traded fund to be of a capital nature if the taxpayer was the owner of the exchangetraded fund for a continuous period of at least 3 years immediately prior to the sale The tax consequences for investors who elect to sell their exchange-traded fund 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 Investec Structured Products 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 2 July 2018 6 July 2018 23 July 2018 4 March 2022 15
Financial Sector Conduct Authority ( FSCA ) licence categories FSCA 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 As a result of continuous review of the various product categories required to distribute our products, and in line with changing legislation we have established that, in order to distribute the Investec Wealth Accelerator, a distributor will be required to have the following licences: CAT1 license holders 1.13 Securities and instruments: Derivative instruments excluding warrants And 1.14 Participatory interests in CIS s (Collective Investment Schemes) CAT2 license holders 2.10 Securities and instruments: Derivative instruments excluding warrants And 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 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. 18