Momentum Structured Commodity Option Returns 40% to Investors

Momentum Wealth, a division of Momentum Group Ltd, recently returned 40% over 3 years to investors from its Structured Commodity Option 1 – a new generation structured product launched in April 2008.

Comparatively over the same period, the FTSE/JSE Top 40 Index returned 1% to investors and the FTSE/JSE RESI Index returned -17%.

Mickey Gambale, head of product development for Momentum Wealth comments: “When we made the product available to investors in April 2008, it was based on the view that commodities would show a positive return over a 3-year period. We believed investors could benefit from this growth while also protecting their investment with a 100% capital guarantee.”

The Momentum Structured Commodity Option 1 was based on a basket of commodities consisting of energy, base metals and precious metals. Its trading price on 30 April 2008 was R1,000. At maturity on 3 May 2011, it traded at R1,400. The basket of commodities grew by 7.45% over the 3-year term but investors gained a 40% investment return as per the product terms.

Gambale says: “The new generation structured products offered by Momentum Wealth provide investors with a ‘digital payoff’. This means that if the basket is positive over the investment term (measured from point-to-point), investors will receive the full return indicated on the product. Even if the basket is positive by only 0.01% investors still receive the full return – in this case 40%.”

Commenting on the performance of the basket, Gambale says: “Commodities fell sharply in November 2008 after having performed strongly in the early part of the year on the back of a strong global economy and booming Chinese growth. Despite the sudden drop towards the end of 2008, commodities recovered significantly over the following two years. Gold in particular was an exceptional performer, increasing in value by over 76% during the period. The precious metals component of the basket rose by 36% in total over the period. Base metals experienced a rally from the increased demand in tin, copper and zinc contributing 4% to the performance of the basket over the period. The energy component struggled and produced negative results overall.

Gambale continued: “We are pleased with the performance of the basket and the blend of commodities, which were specifically chosen for their low correlation to each other and our view that overall the basket would experience strong growth over a 3-year period. Most of all we are delighted that investors shared in this positive growth at a time when economies globally were emerging from a very difficult financial crisis.”