The JSE and finance forum for South Africa
General Category => Shares => Topic started by: Pluto on September 11, 2015, 11:29:03 am
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Hi,
I've often heard about funds like the below but never gotten around to checking them out.
https://www.discovery.co.za/discovery_coza/web/linked_content/pdfs/invest/discovery_europe_high_five_fund.pdf (https://www.discovery.co.za/discovery_coza/web/linked_content/pdfs/invest/discovery_europe_high_five_fund.pdf)
From my side, it doesn't look too bad but I get the feeling that i'm missing something otherwise people would be talking about it a bit more.
In a nutshell from what I understand, invest over R100,000 after 5 years you'll get interest as if you'd been invested in the top 5 European shares.
A few catches I think there may be:
- It looks like they'll only give you the % increase over the 5 years, so you'll miss out on some compound interest.
- Your money will be stuck there for 5 years which could be seen as bad or not.
- They have something about if the top 20 drop by over 40% at anytime in the 5 years you won't get the top 5 returns, instead you'll get returns from the top 20.
- I guess if you think Europe is really in trouble it could be a bad idea too.
Would the possibility of being invested in the Top 5 Euro shares not outweigh the above negatives?
Can you guys give me your opinion on it?
Thanks
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I would love to know what the fees are. But the thing is passively managed index trackers always outperform managed funds. Although it does seem that there is minimal management in this fund.
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For some reason the PDF won't open for me, but if I was a betting man, I'd imagine these products are structured to make sure that the client takes on more risk than Discovery. There's never a free lunch, it just might be a paid lunch that suits you.
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Sounds like you'll be buying a 5 year lookback option with an upfront premium of R100,000. Clearly it is not a naked option and they are structuring it to protect most of your capital. As with all options, you are paying for it upfront and they will be the ones making most of the money. Maybe you will make some too. But it's always far better to spend your money on yourself to get educated about the market and find your own investing strategy.
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very interesting find.
i will investigate a bit more
this part :
"Although the global portfolio is based on offshore investment
markets, it is unaffected by any rand appreciation or
depreciation. You will therefore not be exposed to any risk
of currency fluctuations. "
i guess that is where the golden egg lies. Eg they will make the profit on the exchange rate difference ( R1,000,000(buy) in Euro's today vs R1,800,000(sell) in Euro's in 5 years is a big difference.
I need to figure out what this part is before a decision though :
Lump sum Discovery Endowment Plan administration fees and financial adviser
fees apply. These will reduce the final return received.
*edit*
a few rough calculations later, subtracting the fee's i was able to find online :
R100,000 invested with 45% gain will give you R137,119 : almost 8% gone due to fee's. I have dropped them an email to confirm...not expecting a reply though :P
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8% fees???? Is that normal for mutual funds/unit trusts/these kinds of funds?
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8% fees???? Is that normal for mutual funds/unit trusts/these kinds of funds?
mostly due to compound interest i think, but yes it is mostly the case. See patrick's blog post for better comparisons http://investorchallenge.co.za/those-fees-are-blatantly-robbing-you/
my rough calculations - still pending confirmation from discovery.
my rough calculations :
R100,000.00 - lumsum intial fee of 1.75% = 98,250 invested
grows to 142,462.5 after 5 years
subtract annual fee's ( 0.75 x 5 = 3.75%) = 5342.33 = R137,119.68
CGT applied : R137,119.68-R100,000.00 = R37 119.68 x 0.15 = 5567.96
Thus amount in bank account after 45% growth is roughly R131,551.04 - tax paid.
45% growth over 5 years is about 9% compounded annually... not that good.
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Thanks for digging a bit deeper into this Erwintwr and for the calculations/explanations.
Doesn't look as good as I initially thought.