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July Structured Product Pick - A middle road investment which will benefit from a weaker rand

by , 18 July 2019
July Structured Product Pick - A middle road investment which will benefit from a weaker rand
The rand has only just broken back below the key R14/$ level and I can tell from the client flows going through our treasury desk, many South Africans are once again keen to get money out of the country.

The USD/ZAR exchange rate was well over R15/$ just a few weeks ago.

This means, the rand has firmed up around +7.75% in the last month-and-a-half. Put another way, that's about a year's worth of interest on a ZAR cash balance.

Looking at historical data, it's also reasonable to assume the currency will continue to weaken around 6% per year. This is around the long-run average.

If you're looking for exact levels to shift funds overseas, our FX transfer desk has mocked up the following diagram with various potential technical currency levels.

From the chart above you can clearly see the trajectory of the local unit.
And, while R12.50/$ seems to be the absolutely bottom of the now sideways range, the upper resistance will only kick in at R17.29/$.
In the meantime, around R14.00/$ is acting like a horizontal Support/Resistance line. So, it’s entirely understandable as to why private clients now once again are starting to build exposure offshore.
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But where and how should you be taking your funds overseas?
The fact is, too many South African’s panic and move currency into offshore accounts without any idea of what they’re going to invest in once the funds are through Exchange Controls.
The usual options of “cash” or “shares” are not looking very attractive at the moment. Overseas interest rates are effectively zero and stock markets internationally are looking extended.
Fortunately, there is a third option.
One that gives you the safety of cash plus the potential growth of equities.
Regular readers will know I’m talking about structured products. And this month’s product is just amazing.
It offers complete capital protection in US Dollars plus geared upside, all guaranteed by one of SA’s biggest banks.
It has all the attributes I look for in a pick:
1. Fully offshore in USD (Currently my favourite hard currency)
2. 100% capital protection (No exceptions)
3. Geared upside (125% of index performance)
4. Reasonable minimum entry level for investors (Just $10,000)
5. No limit to the upside growth.
And, the product is also backed by a massive local bank.  But, let’s look at each of the five features above in a bit more detail.
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The Currency
At the moment, the US Dollar is my favourite currency.  Or, I should rather say, it’s the currency I’m least fearful about. The British Pound is currently “uninvestable”. At least until we see a resolution to the Brexit situation. The Euro may seem “safe”, but it also has deep structural issues. Italy and France are both in political mess while Germany is undergoing a changing of the guard as Angela Merkel retires. USD is my offshore currency of choice.
100% Protection
Many products offer protection in USD but they almost always come with exceptions. Perhaps, the index cannot fall more than 30%. Or the product will offer 100% protection, but the protection is only in rand. This is a “no exception” 100% USD guarantee which is very rare.
Geared upside (and no limit)
Straight off the bat, I must say many products offer much more than 125% gearing. I’ve seen as good as 1,000%. However, they almost usually come with an upside cap. This product has unlimited upside!
$10,000 minimum
Though its not essential, I prefer a smaller minimum entry level. Most comparable products start at double this minimum. High minimums exclude many clients from the benefits of these investments. It also hampers a client’s ability to follow a “portfolio strategy” when buying structures.
A $10,000 minimum level is actually perfect, as it’s also the minimum amount of money you should be taking through exchange controls if you’re want to minimize costs.
If you’d like to learn more about this specific structured product, please contact me at support@randswiss.com.
Viv Govender,
Wealth Manager, Rand Swiss

July Structured Product Pick - A middle road investment which will benefit from a weaker rand
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