Investec launches first rand autocall product

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The aim of the S&P 500 Rand Autocall is not to create a trading tool, but targets older people or those who can’t take a risk with their money, says Japie Lubbe of Investec Structured Products, so there’s a high level of capital protection.

It’s a five-year product, but it can expire early (automatically called or autocall) if the index level closes higher on any of the automatic redemption dates (paying 42% after three, 56% after four or 70% after five years respectively). At the earliest of these points the investment will redeem early, and will pay back the investors’ initial investment plus a return of 14% per annum.

The index level is set from the date the product is bought, in case 14 July 2016, and can be paid out after the initial period of three years if this level has risen by one point. If it hasn’t gone up, the investment carries over to the next year and so on, he says.

Testing the market

Lubbe explains that the company has carried out a test on how the product would have performed on the S&P 500 from1928 to 2016 – a period that includes the Great Depression and more recent financial crashes.

Of the 20,936 investment periods tested:

• Products would have been called giving positive returns after year three – 75,9% of the time.

• Product would have been called giving positive returns after year four – 4,4% of the time.

• Product would have been called giving positive returns after year five – 4,9% of the time.

• Product protected capital -9,5% of the time.

• Product lost capital – 5,3% of the time.

Investing in the growth of the US economy

US financial conditions have eased since January 2016 on account of a weaker US dollar, a narrowing of credit spreads and a rise in the S&P 500. In addition, the US economy's strengths, jobs and low interest rates have supported the equity markets and S&P 500 in particular. Volatility in the stock market has also been significantly lower than levels seen over the turbulent first few weeks of the year, this is largely due to Fed dovishness.

The S&P 500 is the largest index in the world and gives a fair representation of the US market. The US is also one of the few major economies in the world to have seen positive stock market growth so far this year.

Many of the world’s leading companies are tracked in the S&P 500, including Facebook, Google and Amazon. The use of the index means that investors benefit from the automatic reweighting which favours the best performing industries and sectors, including the growing areas of technology and large pharmaceuticals.