Author Topic: Offshore Structured Product  (Read 2372 times)

IndustryGuy

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Offshore Structured Product
« on: September 13, 2018, 01:40:42 pm »
Hey again

I know this is a very pro-ETF forum and I do not blame you. ETFs are good, cost-effective products, and contrary to popular belief, us brokers do not hate them. I personally have recommended them for many clients. But should you put all your money in ETFs? That depends on your risk-profile. At the end of the day ETFs are full-on equity instruments which do make them a bit more high risk than other products. It may thus not be a bad idea to put some money, at least, in other instruments to negate some of the risk or even to hedge. Thus I know this product may not be for everyone but some may just find a good fit for it inside their overall portfolio.

1. It is an offshore, USD based structured product.
2. It is a fixed investment of 5 years although daily liquidity are provided on a 'willing buyer, willing seller' basis. If no buyer can be found, the issuer will provide liquidity 1.25% away from fair value.
3. Complete capital protection plus 5%. Hence, at the least, you will get a 5% return if markets are down after 5 years in which case you will definitely be beating the market.
4.You get geared upside diversified equity exposure to the following indices: 20% Nikkei225; 40% S&P500, 25% Euro Stoxx 50 and 15% iShares MSCI Emerging Markets ETF.
5. The upside is 2X geared on any growth between 5% and 27.5%. That would be a possible annualised return of 8.45% per annum in USD.
6. These gains are after fees. Whether you go straight to the issuer or do it through us, the costs are the same. There are no hidden costs or surprise fees.

Again, this product is for diversification. I will not recommend throwing your whole portfolio into it but it is good for hedging and diversification.

If you have any interest in this product just send me a pm with your contact details and I will get back to you.

NB: For those who are not aware of it yet, we also offer special rates for offshore transfers for members of this forum. Patrick and a few other forum users have used us before so they can vouch for us. Rand Swiss will do offshore transfers for this forum's users for 0.8% (VAT incl). We do this through a CCM account with Investec which will also pay you 6.5% per annum on any Rands you hold in the account above R10,000. So you can at least earn some interest while you wait for the right time to do the transfer.

Nivek

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Re: Offshore Structured Product
« Reply #1 on: September 13, 2018, 02:40:18 pm »
NB: For those who are not aware of it yet, we also offer special rates for offshore transfers for members of this forum. Patrick and a few other forum users have used us before so they can vouch for us. Rand Swiss will do offshore transfers for this forum's users for 0.8% (VAT incl). We do this through a CCM account with Investec which will also pay you 6.5% per annum on any Rands you hold in the account above R10,000. So you can at least earn some interest while you wait for the right time to do the transfer.
6.5% is not bad. If I left my money there and needed some back for something urgent, could I get it back out? If it does it might make sense to use it for my emergency fund.

IndustryGuy

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Re: Offshore Structured Product
« Reply #2 on: September 14, 2018, 09:24:42 am »
NB: For those who are not aware of it yet, we also offer special rates for offshore transfers for members of this forum. Patrick and a few other forum users have used us before so they can vouch for us. Rand Swiss will do offshore transfers for this forum's users for 0.8% (VAT incl). We do this through a CCM account with Investec which will also pay you 6.5% per annum on any Rands you hold in the account above R10,000. So you can at least earn some interest while you wait for the right time to do the transfer.
6.5% is not bad. If I left my money there and needed some back for something urgent, could I get it back out? If it does it might make sense to use it for my emergency fund.

You can. Just send us an email as to where you would like the money to be sent. We will give you a call to confirm. Payment will take 2 days or can be done immediately for R50 fee. Fee is charged by Investec, not us.

IndustryGuy

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Re: Offshore Structured Product
« Reply #3 on: October 30, 2018, 03:49:10 pm »
Hi,

Got a new Offshore Structure available:

1. Offshore, USD based product dependent on the performance of the Euro Stoxx 50 Index.
2. 5-year investment.
3. Complete capital protection up to -40%. In other words, if markets are negative (but down by less than 40% after 5 years) you will get all your money back.
4. Enhanced return in positive markets. If markets are up by just 0.01%, you will get 55%.
5. Uncapped upside. If markets are up by more than 55%, you will enjoy the full upside.

All returns are after fees and in USD. Please do note that a minimum investment of $25,000 is required.

Again, this is not something you will invest all your money in. It is more to hedge against negative markets while at the same time getting geared returns in positive markets.

Feel free to send me a PM if you would like to know more about the product. You can also send me a mail at [email protected] or contact me on 011 781 4454.

argentum

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Re: Offshore Structured Product
« Reply #4 on: October 31, 2018, 11:42:47 am »
Hi, I have a few questions:
  • Who's the counter-party in this deal? IOW is the deal good unless Investec Bank itself goes bankrupt?
  • What happens if I'm forced to sell before 5 years? Do I get pro-rata, capital back, or a reduced rate?
  • Is that -40% guarantee on the un-geared euro-stoxx50? IOW NOT geared to both + and - side?
  • How are the gains taxed? I assume CGT after the 5 year period?

IndustryGuy

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Re: Offshore Structured Product
« Reply #5 on: October 31, 2018, 01:33:46 pm »
Hi, I have a few questions:
  • Who's the counter-party in this deal? IOW is the deal good unless Investec Bank itself goes bankrupt?
  • What happens if I'm forced to sell before 5 years? Do I get pro-rata, capital back, or a reduced rate?
  • Is that -40% guarantee on the un-geared euro-stoxx50? IOW NOT geared to both + and - side?
  • How are the gains taxed? I assume CGT after the 5 year period?

Hi Argentum,

I should have noted that this product is not with Investec as with the other one. It is a bespoke structure Rand Swiss is doing with Sanlam.

1. The counterparty is a Fitch A rated institution, which is higher than any local bank. If he bank goes bankrupt you will suffer losses. That’s why we don’t recommend putting 100% into any single product. Having said that, if an A rated institution goes under, we would be looking at a massive financial crisis, rivaling that of 2008.

2. There is no liquidity on this product. Do not invest money into it unless you are certain you wont need it for 5 years.

3. I was wrong to use the word geared. Returns are digital, not geared. Hence your return will be 55% regardless of where the market is from 0.01% to 55% after 5 years. If the market is at 0% or down up to -40%, you will get all your capital back. Anything below -40% and there is no longer any capital protection. Downside is not geared though. If it is down by 41%, your return will be -41%.

4. At the current tax schedule, you will pay a 12% capital gains tax rate on the profits. This does not depend on your personal marginal tax rate.

I hope that answered your questions. If not, just let me know.

IndustryGuy

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Re: Offshore Structured Product
« Reply #6 on: April 08, 2019, 01:16:00 pm »
New FTSE 100 Structure:

A local rand-rand based investment on the performance of the FTSE 100 index and will give 18% per annum in simple interest and 40% downside protection. It works as follows:

-   If the FTSE 100 index is positive after 3 years, compared to initial investment level, you will get a return of 54% and the investment will be closed.
-   If the FTSE 100 is negative at the end of year 3, it will run for another year. If it is positive at the end of year 4, you will get a return of 72% and the investment will close.
-   If it is still negative at the end of year 4, the investment will run for one final year. If it is positive after year 5, you will get a return of 90% and the investment will be closed.

Downside protection:

-   If the investment is still negative after year 5, you will get 40% downside protection. In other words, if the investment is negative, but by less than 40%, you will get 100% of your capital back.

Other benefits:

-   All returns are AFTER fees.
-   Local, rand based investment which means you do not have to use up your foreign allowance to invest.
-   Performance will not be affected by the rand’s performance versus the British pound.
-   As investment is for a minimum of 3 years, all gains will be taxed at the lower Capital Gains Tax rate.


If you would like to know more, shoot me a mail at [email protected] or give me a call on 011 781 4454.

Also, we now have quite a few members of this forum using us to do their offshore transfers. You guys still get a special rate of 0.75% for the transfers so just be sure to let us know if you found us on the forum. Otherwise you will be put on the standard 1%  :( :'( :( It still comes with an Investec account that will give 6.5% (actually 7% when taking into account that is compounds every month) per annum as long as you keep the balance above R10,000.

Bevan

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Re: Offshore Structured Product
« Reply #7 on: April 13, 2019, 10:43:54 pm »
New FTSE 100 Structure:

Your return numbers are misleading. Working for a regulated brokerage you really should be more careful.

You're offering an option structure based on the current strike price of the FTSE. It returns 18% per annum in simple interest, not 54% or 72%. That's just you adding up all those 18% returns.... i.e. if I invest R100 in this structure then after 3 years I assume I get my R100 back plus R18*3 = R154. Compound interest would have given me R164 back. Nevertheless, 18% per annum is still pretty good.

Of course if markets do better than 18% return per annum then the option writer gets to keep that upside. Not so? Also, what happens if for some reason the FTSE is 40% lower? Then I presume the option is worthless and one loses their premium i.e. their initial R100...?

I imagine this would appeal to an investor who thinks markets are neither going to shoot the lights out, or fall too much. I reckon there's a decent crowd out there who might fall into that mindset. Either way, must be a nice book for your option traders to manage. Short vol, negative gamma trading is always exciting.   8)

XXXXX

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Re: Offshore Structured Product
« Reply #8 on: April 14, 2019, 08:37:02 am »
[
4. At the current tax schedule, you will pay a 12% capital gains tax rate on the profits. This does not depend on your personal marginal tax rate.



I would really like to understand the reasoning behind this "12% capital gains tax rate." 

thanks in advance.

Orca

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Re: Offshore Structured Product
« Reply #9 on: April 14, 2019, 11:55:36 am »
The first R40k of the gain is tax free so deduct this from the total gains.

From the remainder you add 40% to your normal tax. This gets taxed at your nominal tax rate.

So the effective tax on the Capital Gains would roughly equal to 12 or 13% of the total Capital Gains if you are not in the top bracket. This may be higher somewhat if you earn above mid management wages.
I started here with nothing and still have most of it left.

XXXXX

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Re: Offshore Structured Product
« Reply #10 on: April 14, 2019, 12:18:41 pm »
If thats the thinking, its extremely irresponsible on RandSwiss to advertise in the way it is.   The 12% would assume that there are no other capital gains earned (i.e. to use the full 40k exclusion) and that the taxpayer is not at the maximum marginal rate.

IndustryGuy also stated that the 12% is not dependent on your personal marginal tax rate.

Either way, I'd really like to hear from IndustryGuy on how a 12% (flat) tax rate is achieved/structured.

XXXXX

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Re: Offshore Structured Product
« Reply #11 on: April 14, 2019, 12:52:56 pm »
Matter of interest,   I just pulled this off the RandSwiss website - presumable the same product (but I am guessing a bit)

"The Euro Stoxx Capital Protector is available within the Glacier International Global Life Plan.
Tax administration is taken care of within the policy on the investor’s behalf. All USD returns earned will be taxed as interest at maturity, using the prevailing tax rates.
The current tax rate on interest for individuals is 30%. Based
on these current rates, a cumulative return of 55% over the five- year period is equal to a return of 38.5% after tax."


Reading this (and the other product blurb's) and speculating a bit, the investment is housed in a Insurance wrapper of sorts, hence the 30% tax rate (individual policy holder fund) referred to in the quote.    Capital gains inclusion rate for a IPF is 40% x the 30% tax rate = the 12% referred to in the original post.

Sort of makes sense, but what doesn't make sense whether the growth in the "investment" is taxed (within the fund) at 30% as interest (per the product brochure) or at 12% as a capital gain (per the post above), or perhaps either depending on the nature of the growth.

In any event, if the above thinking is correct - I'd have to apply my mind to the tax consequences of you incurring a loss (should the investment tank), but I'm immediately thinking that any loss is disregarded by yourself (i.e. you can't set off the capital loss against other gains) as a result of you be the original policy holder in a long term insurance policy.

No thank you - I'll stay away.

« Last Edit: April 14, 2019, 01:03:33 pm by XXXXX »

IndustryGuy

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Re: Offshore Structured Product
« Reply #12 on: April 15, 2019, 10:42:08 am »
New FTSE 100 Structure:

Your return numbers are misleading. Working for a regulated brokerage you really should be more careful.

You're offering an option structure based on the current strike price of the FTSE. It returns 18% per annum in simple interest, not 54% or 72%. That's just you adding up all those 18% returns.... i.e. if I invest R100 in this structure then after 3 years I assume I get my R100 back plus R18*3 = R154. Compound interest would have given me R164 back. Nevertheless, 18% per annum is still pretty good.

Of course if markets do better than 18% return per annum then the option writer gets to keep that upside. Not so? Also, what happens if for some reason the FTSE is 40% lower? Then I presume the option is worthless and one loses their premium i.e. their initial R100...?

I imagine this would appeal to an investor who thinks markets are neither going to shoot the lights out, or fall too much. I reckon there's a decent crowd out there who might fall into that mindset. Either way, must be a nice book for your option traders to manage. Short vol, negative gamma trading is always exciting.   8)

Hi Bevan,

I did mention that it was in simple interest but I do apologise if I did not make that clear enough. Yes, your capital is only protected up to -40%. If it is down more than 40%, you will take the full 40%+ hit.

IndustryGuy

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Re: Offshore Structured Product
« Reply #13 on: April 15, 2019, 01:06:30 pm »
Matter of interest,   I just pulled this off the RandSwiss website - presumable the same product (but I am guessing a bit)

"The Euro Stoxx Capital Protector is available within the Glacier International Global Life Plan.
Tax administration is taken care of within the policy on the investor’s behalf. All USD returns earned will be taxed as interest at maturity, using the prevailing tax rates.
The current tax rate on interest for individuals is 30%. Based
on these current rates, a cumulative return of 55% over the five- year period is equal to a return of 38.5% after tax."


Reading this (and the other product blurb's) and speculating a bit, the investment is housed in a Insurance wrapper of sorts, hence the 30% tax rate (individual policy holder fund) referred to in the quote.    Capital gains inclusion rate for a IPF is 40% x the 30% tax rate = the 12% referred to in the original post.

Sort of makes sense, but what doesn't make sense whether the growth in the "investment" is taxed (within the fund) at 30% as interest (per the product brochure) or at 12% as a capital gain (per the post above), or perhaps either depending on the nature of the growth.

In any event, if the above thinking is correct - I'd have to apply my mind to the tax consequences of you incurring a loss (should the investment tank), but I'm immediately thinking that any loss is disregarded by yourself (i.e. you can't set off the capital loss against other gains) as a result of you be the original policy holder in a long term insurance policy.

No thank you - I'll stay away.

Hi xxxxx,

The Eurostoxx Capital Protector was a separate structure from Sanlam as the FTSE structure which is from Investec. The FTSE structure is not placed within a wrapper and the losses and profits are taxed in your name.

XXXXX

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Re: Offshore Structured Product
« Reply #14 on: April 15, 2019, 01:36:31 pm »

The Eurostoxx Capital Protector was a separate structure from Sanlam as the FTSE structure which is from Investec. The FTSE structure is not placed within a wrapper and the losses and profits are taxed in your name.

Fair enough