A global port­fo­lio with un­lim­ited growth and lim­ited risk

Lib­erty’s newly launched Ad­vanced Global Eq­uity T1 port­fo­lio is aimed at pro­vid­ing in­vestors with sim­ple, tax­ef­fi­cient off­shore ex­po­sure.

Finweek English Edition - - Fundfocus Introduction - By Leon Kok

if you’re look­ing to di­ver­sify your in­vest­ment to gain ex­po­sure to off­shore mar­kets with a sound safety net and tax-ef­fi­ciency, there’s a com­pelling case to be made for Lib­erty’s Ad­vanced Global Eq­uity T1 Port­fo­lio. “Brand new, just launched and of­fered through the group’s ‘Evolve In­vest­ment Plan’, it’s a struc­tured port­fo­lio that’s sim­ple, fully trans­par­ent and al­lows clients to see what they get,” Vi­mal Cha­gan, Lib­erty’s di­vi­sional di­rec­tor for in­vest­ment propo­si­tions, ex­plains.

Cha­gan, who joined Lib­erty a year ago, is tasked with de­vel­op­ing a func­tional in­vest­ments op­er­at­ing model within the group’s re­tail busi­ness.

Though not hav­ing played in the struc­tured prod­ucts mar­ket for some time, Lib­erty has iden­ti­fied a gap in the mar­ket to as­sist those in­vestors who are un­der­stand­ably con­cerned about lo­cal sav­ings and in­vest­ments be­ing eroded over time – and are ner­vous about in­vest­ing off­shore.

The Ad­vanced Global Eq­uity T1 port­fo­lio of­fers clients un­lim­ited in­vest­ment growth while sig­nif­i­cantly re­duc­ing risk on the orig­i­nal in­vest­ment, mean­ing that they can grow and pre­serve their in­vest­ment, re­gard­less of mar­ket con­di­tions, says Cha­gan.

For a min­i­mum in­vest­ment of R150 000, clients have ac­cess to a five-year port­fo­lio of an equally-weighted bas­ket of off­shore cap­i­tal in­dices, namely the S&P 500 and Euro Stoxx 50, pro­vid­ing ex­po­sure to some of the largest com­pa­nies in the US and Europe while en­sur­ing a safety net on their ini­tial in­vest­ment to guard against mar­ket volatil­ity.

Re­gard­less of how far mar­kets fall, Lib­erty will re­turn the in­vestor’s in­vest­ment amount af­ter ini­tial fees, and this is based on BNP Paribas’s credit risk, says Cha­gan. Even if re­turns are 0.1% af­ter 5 years, the in­vestor will get at least 10% a year, af­ter fees and taxes. If mar­kets per­form ex­cep­tion­ally well and ex­ceed that 10% re­turn, they ben­e­fit from the full af­ter-tax re­turn af­ter tax ad­just­ments.

A sig­nif­i­cant plus is that there is no cur­rency ex­po­sure, and if, say, the rand con­tin­ues to weaken (or con­versely strength­ens), the rand in­vest­ment re­turns will not be af­fected.

Re­turns are cal­cu­lated in a sim­ple way, Cha­gan ex­plains. “At year five, if the in­dex grew, your in­vest­ment would also have grown. In this man­ner, you ben­e­fit from the per­for­mance of the in­dex. Nat­u­rally, of course, the value of the in­vest­ment can be dif­fer­ent dur­ing the term in com­par­i­son to its value at year five.

“A fur­ther at­trac­tive fac­tor is that be­cause the Ad­vanced Global Eq­uity port­fo­lio is struc­tured as an en­dow­ment, it has a tax-ef­fi­cient de­sign and re­turns are taxed within it. The net re­turn is there­fore yours as there’s no fur­ther tax­a­tion and you don’t need to get in­volved in tax ad­min­is­tra­tion has­sles.”

In­vest­ments in ex­cess of R1m re­ceive an en­hance­ment of 1% on the in­vestor’s lump-sum in­vest­ment, and in­vest­ments in ex­cess of R3m re­ceive an en­hance­ment of 2% on the lump-sum in­vest­ment amount, Cha­gan adds.

“If you in­vest R1m, we will in­vest an ex­tra R10 000 on your be­half, and sim­i­larly, if you in­vest R3m, we will in­vest an ex­tra R60 000 on your be­half.”

A deemed risk in Ad­vanced Global Eq­uity’s over­all struc­ture would be a fi­nan­cial col­lapse by PNB Paribas, re­sult­ing in cap­i­tal loss to the in­vestor. Never say never, but this is highly un­likely in the fore­see­able fu­ture. Paris-based PNB Paribas is the world’s eighth largest bank with a pres­ence in 77 coun­tries. Fitch has given it an A+ in­ter­na­tional rat­ing.

Changes to tax could also neg­a­tively im­pact on re­turns.

The five-year in­vest­ment pe­riod starts on 7 De­cem­ber 2018 for all port­fo­lio in­vestors. Lib­erty is al­ready ac­cept­ing amounts, which are be­ing placed in a money mar­ket fund un­til the port­fo­lio com­mence­ment date. Re­turns will be in­vested in the Ad­vanced Global Eq­uity port­fo­lio.

Re­gard­ing with­drawals by clients for emer­gency pur­poses, they are af­forded emer­gency ac­cess to their money, says Cha­gan. “One early with­drawal of all, or a por­tion of the in­vested funds, can be made dur­ing the term.

“While there is no charge for an early with­drawal, it’s im­por­tant to re­mem­ber that the port­fo­lio isn’t guar­an­teed dur­ing the five-year pe­riod, but only on com­ple­tion of the five years. In­vestors, as such, should ide­ally re­main fully in­vested for the five-year term.” ■

For a min­i­mum in­vest­ment of R150 000, clients have ac­cess to a five-year port­fo­lio of an equally-weighted bas­ket of off­shore cap­i­tal in­dices, namely the S&P 500 and Euro Stoxx 50.

Di­vi­sional di­rec­tor for in­vest­ment propo­si­tions at Lib­erty

Vi­mal Cha­gan

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