Stock market gains without stock market risk

The low savings rate of South Africans has worrying implications for the future of our country. Absa is committed to play a role in creating a savings culture by developing solutions that will provide customers with relevant mechanisms to amass wealth for their futures. 

"Saving is the foundation to building and establishing wealth, but as we all know, you "need money to make money" says Keith McIvor, head of Savings and Investments at Absa.

Absa Retail and Absa Capital, the Group's Investment Bank, have therefore joined forces to combine their local market knowledge and investment product skills with the proven global investment expertise of Barclays to create Index Performer. It is a new breed of attractive investment products aimed at adding new dimensions to the savings and investment portfolios of Absas customers.

Index Performer affords customers with an exciting way of investing on the JSE Securities Exchange whilst not assuming great capital risk and without the associated costs and complexity normally associated with such investments.

Index linked products mimic the behavior of stock market indices or other benchmarks and have become hugely sought after internationally. The market in Europe is currently growing at between 40% and 50% a year and is expected to grow even faster during the next three years.

"Barclays has seen tremendous success with index linked products in the UK and Europe. Research has shown that these products are popular because they have daily pricing and trading, and the charges are low. Their range is so diverse now that they cover nearly as many asset classes as active managers," says Absa Capitals Adam Bunkell, who played a major role in designing this product alongside Absa Retail.

Absa's Index Performer comes in two packages, the JSE Performa 100 and the JSE Performa 90. Customers can choose the one most suited to their personal risk profile and market view.

It is an exclusive offer and is only available from 1 October 2007 to 1 November 2007.

The packages are linked to the JSE Top 40 Index which comprises leading blue chip shares such as Absa, Anglo American plc, Barloworld, BHP-Billiton, MTN, Pretoria Portland Cement, Old Mutual, Remgro, SAB-Miller plc and Tiger Brands.

Both Absa Retail and Absa Capital believe that potentially the JSE Top 40 is one of the most attractive investment options at present. "We are nearing the end of protracted booms around the world in corporate earnings and, in preparation for further market downturns, markets are moving back towards large companies that are better able to sustain earnings during uncertain economic times," says McIvor.  

A benefit of investing in a diversified blue chip index, such as the JSE Top 40, is the fact that risk is minimized relative to direct equity investments.

"Another differentiating factor is that unlike a normal fixed deposit, the customer is not guaranteed a return (interest) set up front and paid out, say, monthly, but instead is paid a return calculated and paid on maturity," says McIvor.

The product is 100% guaranteed on maturity in the case of the JSE Performa 100, and 90% guaranteed on maturity in the case of the JSE Performa 90. The maximum pre-determined upside is 25% for the JSE Performa 100 and 37% for the JSE Performa 90.

"The attraction therefore is that the customer can benefit from upside in the overall stock market and be spared serious consequences in the case of a major collapse. The JSE Performa 90s maximum return is almost 1.5 times higher than the JSE Performa 100's maximum return given that the former's investors assume higher overall capital risk," says Bunkell.

Other key features are that the Index Performer is easily accessible throughout the Absa retail network (Call Centre, online or branches); the minimum investment is R10 000; and no upfront fees, commission or management charges apply.

The investment period is set at 18 months. "We initially considered a three-year span, but concluded in the end that 18 months would be most appropriate for our target market. It very deliberately differentiates the Index Performer from assurance products with five-year plus minimum horizons and unit trusts that are open-ended," says McIvor. 

"Absa Retail, along with Barclays and Absa Capital, is committed to launching more sophisticated and specialized Index Performer products going forward, using commodities, gold, property and other baskets. Many of these will also be aligned with existing Barclays products abroad," concludes McIvor.

Further information on Index Performer is available at www.absa.co.za