A new fixed-term investment promises to give investors the “benefit of hindsight”, by locking in the highest returns during the investment period, regardless of any following falls.
Sequoia Hindsight Units are based on the S&P/ASX 200. The investment is hedged using a customised derivative that captures gains daily and locks them in.
Sequoia head of Structured Products, Marcel Collignon, says that it is an investment for people with a positive view on the market.
“An investor really has to have a five-and-a-half year view that they’re happy and comfortable to stay with it because if the investment is down straight away then the capital protection is only available at maturity,” he said.
Investors can apply for a limited recourse loan to borrow 100% of the minimum $25,000 investment amount. However, just like any geared investment, if the investment doesn’t perform better than their interest expense then they’re worse off.
Structured products have been criticised in recent years for being complex and charging high fees, but Collignon says the Sequoia products stood up to scrutiny.
“Of course structured products are more complex than putting cash in a term deposit or buying shares directly and nobody is suggesting they are ideal for everyone,” he said. “However, many people take pride and enjoyment in learning about their different investment options and it’s unfair to say that they are incapable of understanding a product such as this. Our product is aimed at those interested investors, and we have every confidence that the intelligent retail investor is perfectly capable of understanding how it works.”
Product fees include 2.5% p.a. hindsight fees which cover the hedging costs (the costs of buying the derivative to deliver the Hindsight Feature) and 10% performance fees, which are payable once the investment achieves returns above the initial investment amount plus the hindsight fees.
“For an investor to start seeing profits in the ungeared version, the investment needs to be up by 13.75% or more at some point during the five-and-a-half years,” said Collignon. “Thanks to the Hindsight Feature, it doesn’t matter if the highest point is at the beginning, middle or the end of the five-and-a-half years”.
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