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New Investec structured investment offers inflation beating returns and capital protection in a volatile market

25 January 2019 Investec

• Earn up to 11.7% a year over three years
• Investment can be held in living annuity and preservation funds
• Linked to the level of the Euro Stoxx 50

Following a year of heightened volatility and poor equity market returns, investors and financial advisers are increasingly looking for investments that deliver decent returns, with capital protection.

The Investec Structured Return Note (ISRN) has been designed with exactly this in mind, in a format that makes it regulation 28 friendly and hence can be held within retirement annuities, living annuities and preservation funds. Regulation 28 of the Pension Fund Act is designed to protect investors by setting guidelines for allocating to certain asset classes, including offshore investments.

The ISRN will be available on participating linked investment service provider (LISP) platforms as well as directly via a stockbroking account.

The ISRN is a three year and one week Rand investment that is linked to the level of the Euro Stoxx 50 Index (SX5E). This product offers 100% capital protection, a minimum return of 15% payable at maturity and a further fixed 25% return should the index return be zero or positive (circa 11.7% maximum effective annual rate of return).

The minimum return thus amounts to 4.7% a year, which falls above the mid-point of the Reserve Bank’s target inflation band of 3% to 6%. The maximum return represents a rate of 11.7% a year (based on no change or a rise in the underlying), which is 5.7 percentage points above the top end of the Reserve Bank’s target band. This is an attractive return given the latest Consumer Price Index, which rose 4.5% in the 12 months to December.

Investec’s Japie Lubbe motivates that the ISRN meets investor requirements for transparency, relative certainty and innovation in a volatile market. “It also ticks many boxes on the regulation 28 front: you can hold it through a LISP and it is also regarded as part of the 30% offshore allocation due to the offshore index reference, catering for financial advisers looking for diversification in a client portfolio.”

“The ISRN can thus be described as a neat, equity exposure investment, but with downside capital protection,” concludes Lubbe.

Financial advisers can invest on clients’ behalf through Investec for Intermediaries, a single platform that allows advisers to save, trade, invest and administer client funds.

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