Portfolio Strategy – How to retain cash yet gain market exposure

Using Instreet Masti you will be able to gain an exposure to the Australian, US and pan-European stock markets at a cost which is just a fraction of your notional exposure.  This approach allows you to retain a high cash balance, which will earn interest and reduce the overall cost of your equity market exposures.  Retaining cash also provides you with the opportunity to buy into the stock market in the event it sustains a significant fall. 

You are not locked-in to making Finance Cost payments on the Masti investment annually, which provides the unique flexibility to ‘walk-away’ if the Reference Index falls.  The upside exposure provides your portfolio with the potential for positive returns if the selected Reference Index continues to appreciate over the investment term.

Instreet Masti allows you to diversify your portfolio

Instreet Masti allows you to retain a high level of cash

A Worked Hypothetical Example

• Assume a hypothetical SMSF has a $528,050 cash holding and is in accumulation phase, with an assumed tax rate of 15%.

• Assume the hypothetical investor is cautious about equity markets but is prepared to use part of the cash balance to obtain market exposure because of the potential growth characteristics of shares. The example assumes the investor wishes to maintain a cash holding of around $500,000. The example also assumes that cash or lower risk income-bearing assets generate around $20,000 p.a. or 4.0% on this balance, although actual returns may be higher or lower and are not guaranteed.

• The example assumes the remaining $28,050 is used to make the initial Finance Cost payment for an investment in Instreet Masti, giving $300,000 notional exposure ($9,350 Finance Cost and fees for every $100,000 of exposure) to one of the ASX200, Euro Stoxx 50 or S&P500.

• In the second and third years, the hypothetical investor may be entitled to a $0.04 per Unit fixed coupon, provided the investor chooses to retain the Masti investment by continuing to pay the annual Finance Cost. This would be a receipt of $12,000 on the assumed $300,000 exposure. If that amount were applied against the annual Finance Cost payments, the ongoing cash outlay would reduce to $10,050 in each of years 2 and 3.

Hypothetical example only - not personal advice: This worked example is hypothetical and is provided for illustration only. It does not take into account any person’s objectives, financial situation or needs and must not be treated as personal financial product advice or a recommendation to acquire, hold, continue, walk away from, or reinvest in Instreet Masti. The figures, assumptions and outcomes are indicative only. Actual outcomes may differ materially and may be positive, negative or neutral depending on market performance, product terms, tax treatment, interest rates, fees, timing and an investor’s own circumstances.

Outcomes

• In this hypothetical example, the investor retains the majority of capital in income assets assumed to earn an average of 4% p.a. Actual income returns may be higher or lower.

• The $28,050, which represents 5.30% of the assumed portfolio value, provides $300,000 of notional exposure to the ASX200, EuroStoxx50 or S&P500, creating the potential to participate in equity market upside.

• If the assumptions used in this example are met, and in the lower-market scenario outlined below, the hypothetical portfolio would be valued at no less than $534,481 at the end of year three. This outcome is not guaranteed and could be affected by changes in market performance, product terms, tax outcomes, costs, reinvestment decisions, timing and investor-specific circumstances.

• If the relevant market is higher at maturity, the hypothetical investor may receive the benefit of the leveraged exposure to the ASX200, EuroStoxx50 or S&P500, as well as returns from the lower risk income-generating assets. Other outcomes are also possible, including lower returns, no final coupon, or a decision not to continue the investment.

Potential Outcomes

1)      Masti Reference Index falls by 30% at Maturity

In the example term sheet shown in Appendix 1, the Reference Index is assumed to be 30% lower at Maturity. In that situation, the hypothetical investor would not receive a final coupon. Based on the assumptions used in this example, the portfolio would be valued at $534,481 at the end of the maximum 3 year Masti investment term.

2)      Masti Reference Index increases by 30% at Maturity

In the example term sheet shown in Appendix 2, the Reference Index is assumed to be 30% higher at Maturity. In this outcome, the hypothetical investor would receive a final coupon of $66,000 and would also receive the assumed benefit of the income-bearing assets, resulting in a total portfolio value of $593,889 at the end of the maximum 3 year term.

3)      Other possible outcomes

Other outcomes are possible. For example, the Reference Index may be flat, may increase or decrease by less than 30%, may move materially during the term but finish at a different level at Maturity, or the investor may choose not to continue the investment by paying a further annual Finance Cost. Changes in interest rates, fees, tax outcomes, market conditions, timing and the selected Reference Index may also materially affect the result.

Summary of the strategy

In this hypothetical example, maintaining a cash holding of around $500,000 may reduce the amount of capital directly committed to the Masti investment. The hypothetical investor may also potentially benefit from equity market upside over the maximum three year investment period. However, the outcome is not risk-free and will depend on the assumptions, the selected Reference Index, market conditions, product terms, costs, tax treatment and the investor’s own circumstances.

It is also important to note that the walk-away feature of Masti may provide flexibility. If a significant fall in a Reference Index occurred after the Commencement Date, an investor may have the ability to ‘walk-away’ from the Masti investment without penalty, subject to the applicable product terms. Depending on the circumstances, an investor might choose to continue the investment, walk away, hold cash, obtain different market exposure, or commence a new investment. Any decision would depend on the investor’s objectives, financial situation and needs at the relevant time and should not be made based only on this hypothetical example.

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.