Link Euro Stoxx50 profit-taking strategy
You will be able to gain an exposure to the Japanese /European stock markets at a cost which is just a fraction of your notional exposure. This allows you to obtain a material exposure to growth assets, knowing upfront the worst-case outcome and your maximum potential loss.
The Link investment provides a leveraged exposure to the Japanese or European equity markets, which means the cost of investing is a fraction of the notional exposure obtained. Instreet Link also offers a minimum conditional return equal to the issue price (before FX adjustment), provided the reference index return is positive at the maturity date.
Strategy
John is 50 years old with a superannuation balance of $600,000.
John has $100,000 invested in international equities and is worried that markets may fall and cause a loss of some material gains
John’s advisor realizes that he requires growth asset exposure to meet his financial goals. He also recognises John’s fears and recommends a strategy to meet his needs and address his concerns.
The strategy sees John sell his current international share exposure and raise $100,000 of cash. Then inside his superannuation fund John invests $12,500 of this cash to obtain $100,000 of exposure to the performance of the Euro Stoxx50 index. The remaining $87,500 is invested into defensive assets earning a 4% yield.
Outcomes
By investing in Link Euro Stoxx 50, John has gained $100,000 of exposure to the pan-European equities markets, keeping the exposure to growth assets the same as it was before the strategy was implemented.
At the end of the term $87,500 would have earned $8,750 in interest and/or distributions.
Assuming an increase of 30% in the Euro Stoxx50 during the term, the investment would make a final payment of $30,000 (before FX adjustments). The $100,000 should be worth $126,250 ($87,500 + $30,000 + $8,750). The opportunity cost of letting John sleep at night was just over $3,000.
If the reference index is up, but not by much (could be as little as 0.0001%) the final payment is $12,500. The $100,000 should be worth $108,750 ($87,500 + $12,500 + $8,750). In this scenario John obtained a better outcome from being invested in the recommended strategy than holding onto the international stocks.
In the worst case scenario where the Euro Stoxx50 falls, John will lose his entire initial investment of $12,500 providing a known downside outcome. The portfolio would be worth $96,250 ($87,500 + $8,750). If the Euro Stoxx 50 falls more than 3.75% John is better off under this strategy.
Benefits of this strategy
John gains maintains an exposure to the medium-term return potential from the pan-European equity markets.
The opportunity cost for this strategy is low and allows John to sleep at night.
If the equity markets are only up by a very small amount, John could be better off following this strategy.
If the equity markets fall, his losses are limited to the initial investment made. This worst-case outcome is known upfront and John could be better off depending on the extent of the fall in the market.
Important Information
Purpose of Document: The purpose of this Document is to provide indicative commercial terms only. The Documents commercial results are based on assumptions that may not be realistic. They are indicative only. Markets and market assumptions can change from the time and the commencement date of the Instreet Masti DPA product. Due care and attention have been used in the preparation of this document. However, actual results may vary and any variation may be materially positive or negative.
Document: This Document has been prepared by Instreet Investment Australia Limited ABN 24 622 827 589 (Instreet), a corporate authorised representative of AFSL 434776, and is current as at 12 August 2021.
Issuer and PDS: The Instreet Masti product is issued by Instreet Structured Investment Pty Ltd ACN 140 407 558 and the issue is arranged by Instreet. Instreet Masti is offered in a product disclosure (PDS) or Information Memorandum (IM). The relevant PDS or IM is available from Level 11, 2 Bulletin Place, Sydney, at the website www.instreet.com.au or by phoning 1300 954 678. In deciding whether to acquire or continue to hold and investment investors must first obtain the PDS and IM and carefully consider its contents.
General advice warning: The information contained in this Document is general in nature only. It has been prepared without taking account any potential investors’ personal financial situation, objectives or needs and the appropriateness of this information needs to be considered in that context. Advisers must form their own views on whether the Instreet Masti is appropriate after considering their clients’ objectives, financial situation and personal needs. We recommend you seek your own legal and taxation advice. The information may be based on assumptions or market conditions and may change without notice. This may impact the accuracy of the information. In no circumstances is the information in this Website to be used by, or presented to, a person for the purposes of making a decision about a financial product or class of products.
However, actual results will vary and any variation may be materially positive or negative.
No responsibility or liability is accepted by Instreet or any third party who has contributed to this document for any of the information contained herein or for any action taken by you or any of your officers, employees, agents or associates.
Past performance: Past performance is not a reliable indicator of future performance.
