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An Offshore Portfolio with a Twist

by , 04 April 2019
An Offshore Portfolio with a Twist
Take a moment to look at following logos:
 

 
 
Behind these logos are some of the strongest, blue-chip companies on the planet.
 
These global companies have such a broad reach that even today, at the tip of Africa, you’ll likely recognize some, if not most, of the brands. 
 
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Now, how do you feel about investing in them?
 
From my experience, some people might want to swap out a handful of the counters based on their own investment outlook, but most people would be glad to throw in a few bucks. I can assure you, most fund managers would be very happy to hold at least half of these companies in their portfolios.
 
So, what do I think?
 
It’s a good, solid offshore portfolio. From a sectoral point of view, it is well diversified. The companies themselves have strong balance sheets which will provide resilience even if we experience tougher economic conditions. And yet, each has its own exciting growth prospects.
 
I would say, if you’d built a portfolio consisting of the above companies, you would have made a reasonably good long-term investment.
 
Good, but most likely not exceptional.
 
Now let’s make things a little more interesting...
 
What if you could be protected from the first 20% of any possible downside?
 
That means, if this portfolio of shares fell 19%, you would lose nothing. If it fell 21% you would only lose 1%. Suddenly this turns from a “good” investment into a “very good” investment, but it’s not truly “exceptional” just yet.
 
It’s the next few add-ons that get you all the way to “exceptional”.
 
Firstly, let’s say, if the portfolio of shares above is positive after 5 years, you get to take the performance of only the top 40% of counters and ignore the bottom 60%. This means your performance would be the average of the top 8 shares only. This return is then also capped at 100% in US dollars, so if the rand weakens over the period, this would then add to your performance.
 
To fully appreciate how powerful this is, look at the JSE in 2018. The overall index was minus -11.4%, but the average return of the 10 best stocks was +38%. That’s how markets react in a negative period. In a positive period, you can expect the average return to be even higher.
 
Finally, the real cherry on top, is that you don’t need to go through South African exchange control.
 
That means it will not impact your offshore allowance. And more importantly it means this product is available to South African’s investing via trusts or companies.
 
Far too many South African trusts and investment companies are hamstrung by regulation preventing them from gaining exposure to international markets. This product provides an answer.
 
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So, what’s the catch?
 
We all know there is nothing free in life. This is especially true in the investment world.
 
If it sounds too good to be true it usually is.
 
So, what’s the catch when it comes to the structured product above?
 
As usual with my structured products, you will be taking on the credit risk of the issuer. So, you need to understand, while you’re directly linked to the share price performance of a basket of 20 blue-chip companies, you are also taking on the credit risk of the product provider.
 
In this case Absa Bank.
 
If Absa Bank was to go bankrupt, you wouldn’t have a call on the underlying companies in the same way as you would if you had invested directly in the company.
 
The second consideration is that this requires a minimum investment of R250,000 with a five year lock up. There is an option for early exit but there is a possibility then that the guarantee will not be effective.
 
Too many clients I deal with have this notion that the investment world is binary. In other words that your only options are to be in the market or in cash. There is a wonderful world of medium-risk products out there, but generally they’re all tailored to very specific investment objectives.
 
As with many of the more sophisticated products, I highly recommend you discuss it with a financial professional before investing. Understanding how this product fits into your overall investment plan is absolutely critical. This specific product is called the GLOBAL TOP 20 Structured Product. A good financial advisor should be aware of it.
 
If I had to rank this product, I would say it’s on the slightly more aggressive side of medium-risk. But if you’d like me to assist you personally feel free to contact me on support@randswiss.com. I’m happy to explain the structure in more detail, when and how you should use it, as well as the most efficient ways of accessing the investment.
 
Viv Govender,
Wealth Manager


An Offshore Portfolio with a Twist
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