WITH many investors spooked by the weakness in global share markets, investment banks have responded by developing a swag of creative ‘capital guaranteed’ products.
WITH many investors spooked by the weakness in global share markets, investment banks have responded by developing a swag of creative ‘capital guaranteed’ products.
Citibank, Macquarie Bank and SG Australia have all introduced investment products that combine protection from capital losses with potential for capital gains.
These products will not suit all investors. They have a medium to long-term maturity (two to six years), do not pay any income and impose a cap or limit on the capital growth that investors can receive.
The offsetting benefit is that investors are guaranteed all of their money back when the investment matures, even if share markets plunge in value over the next few years.
Citibank’s Market Linked Investment (MLI), launched last month, is unlike anything offered in Australia before.
Returns to investors are linked to the performance of four different share markets – in Australia, South Korea, Taiwan and Singapore.
Citibank selected these markets because: “We believe that the Asian markets have the potential to recover quicker than the US and have strong growth po-tential”.
The maximum return is potentially unlimited, if the four nominated markets were to rise strongly. However, the extent to which investors capture any market gains will be determined by a nominated participation rate between 55 and 75 per cent.
If the markets were to fall in value, investors are guaranteed a minimum return of 3 per cent (if they hold the investment for the full two-and-a-half-year term).
Macquarie is currently promoting two capital guaranteed products, pitched at “conservative investors who want exposure to the share market without capital risk”.
Its Capital Plus product is a six-year investment tied to the performance of 10 blue chip Australian shares (see table).
If the share portfolio grows in value over six years, investors receive 110 per cent of the portfolio’s increased value.
If the portfolio falls in value, investors receive their original outlay.
Macquarie’s Deposit Plus pro-duct is a five-year term deposit that also offers some potential for capital growth. Investors receive quarterly income plus 50 per cent of any growth in the value of the S&P/ASX 200 Index.
Yet another option for risk-averse investors is SG Australia’s CaPELS, otherwise known as Capital Protected Equity-Linked Securities.
SG – the local arm of French banking giant Societe Generale – has issued four series of CaPELS.
In each case the return is linked to a specified portfolio of shares or a market index. For instance, returns from CaPELS Series 4 are tied to the S&P500 Index, which tracks the value of the 500 largest stocks in the US.
In a worst-case scenario, such as plunging US share prices, investors in CaPELS Series 4 will receive their money back when the investment matures in five years.
In a best-case scenario, the investment will grow in value by a maximum of 15 per cent per year. Any returns above 15 per cent would be retained by SG.
Research group Lonsdale views CaPELS Series 4 as a “low cost and low risk” opportunity for investors to gain some exposure to the US share market.
Similarly, InvestorWeb Re-search recommends CaPELS Series 4 as “a suitable product for more risk-averse investors seeking exposure to US equities within a diversified portfolio”.
All four series of CaPELS are currently trading on the ASX well below their $1,000 issue price, reflecting the general market weakness.
For instance, Series 4 is trading at about $965, while Series 3, which is linked to the S&P/ ASX200 Index, is trading at about $960.
p Next week:
Capital guaranteed share investment loans.
Citibank, Macquarie Bank and SG Australia have all introduced investment products that combine protection from capital losses with potential for capital gains.
These products will not suit all investors. They have a medium to long-term maturity (two to six years), do not pay any income and impose a cap or limit on the capital growth that investors can receive.
The offsetting benefit is that investors are guaranteed all of their money back when the investment matures, even if share markets plunge in value over the next few years.
Citibank’s Market Linked Investment (MLI), launched last month, is unlike anything offered in Australia before.
Returns to investors are linked to the performance of four different share markets – in Australia, South Korea, Taiwan and Singapore.
Citibank selected these markets because: “We believe that the Asian markets have the potential to recover quicker than the US and have strong growth po-tential”.
The maximum return is potentially unlimited, if the four nominated markets were to rise strongly. However, the extent to which investors capture any market gains will be determined by a nominated participation rate between 55 and 75 per cent.
If the markets were to fall in value, investors are guaranteed a minimum return of 3 per cent (if they hold the investment for the full two-and-a-half-year term).
Macquarie is currently promoting two capital guaranteed products, pitched at “conservative investors who want exposure to the share market without capital risk”.
Its Capital Plus product is a six-year investment tied to the performance of 10 blue chip Australian shares (see table).
If the share portfolio grows in value over six years, investors receive 110 per cent of the portfolio’s increased value.
If the portfolio falls in value, investors receive their original outlay.
Macquarie’s Deposit Plus pro-duct is a five-year term deposit that also offers some potential for capital growth. Investors receive quarterly income plus 50 per cent of any growth in the value of the S&P/ASX 200 Index.
Yet another option for risk-averse investors is SG Australia’s CaPELS, otherwise known as Capital Protected Equity-Linked Securities.
SG – the local arm of French banking giant Societe Generale – has issued four series of CaPELS.
In each case the return is linked to a specified portfolio of shares or a market index. For instance, returns from CaPELS Series 4 are tied to the S&P500 Index, which tracks the value of the 500 largest stocks in the US.
In a worst-case scenario, such as plunging US share prices, investors in CaPELS Series 4 will receive their money back when the investment matures in five years.
In a best-case scenario, the investment will grow in value by a maximum of 15 per cent per year. Any returns above 15 per cent would be retained by SG.
Research group Lonsdale views CaPELS Series 4 as a “low cost and low risk” opportunity for investors to gain some exposure to the US share market.
Similarly, InvestorWeb Re-search recommends CaPELS Series 4 as “a suitable product for more risk-averse investors seeking exposure to US equities within a diversified portfolio”.
All four series of CaPELS are currently trading on the ASX well below their $1,000 issue price, reflecting the general market weakness.
For instance, Series 4 is trading at about $965, while Series 3, which is linked to the S&P/ ASX200 Index, is trading at about $960.
p Next week:
Capital guaranteed share investment loans.
