CAPE TOWN – Psychologically hard-wired to seek certainty, we tend to struggle with the many unknowns that typically come with a general election.
The standard risk-return investment tradeoff can even become skewed by the sheer unpredictability and disproportionate macroeconomic importance placed on the outcome of one single sovereign event.
For South African investors, it comes as no surprise that fears over land expropriation, the potential loss of capital and fluctuating global markets were at the forefront of discussions in the days leading up to this year’s national and provincial elections.
With these uncertainties at play, Fareeya Adam, head of retail product solutions at Momentum Investments, says that creating a basket of diverse solutions is currently a top priority for these investors. “Markets are fluctuating greatly right now – locally, because of the elections, but also globally because of rising concerns over a US-China trade war and the complicated Brexit situation”.
“Local investors are increasingly seeking diversification through global exposure to achieve growth while maintaining a degree of certainty.”
Adam warns against painting all local investors with the same brush. “Every individual’s investment needs are different. It is therefore critical that each investor is exposed to the right type of investment solution for their specific risk appetite. Whether that is in equities, money markets or guaranteed products will depend on their defined investment profile and needs.”
Adam reiterates that any degree of certainty of return is characteristically perceived to limit an investor’s potential for return. “The thing about certainty is that as much as people want it, any astute investor will tell you that the more risk you take, the more upside potential for return is possible.”
This, she explains, is why structured products have gotten a bit of a bad reputation among high-return-seeking investors over the years. “Investors are aware that if markets run and grow more than expected, a structured solution with a specific guaranteed return will not provide the level of return that would have been possible with a higher degree of risk involved.
“However, the flipside of this story is that, if there is a sudden market downturn, a structured product will provide valuable capital protection from extreme volatility.”
This, Adam says, is the driving motivation behind the newly launched Momentum Enhanced Growth Option – the structured investment product which challenges conventional investment thinking that assumes that higher returns are only possible through exposure to higher risk.
“We wanted to create a product that is suited to the local investor looking for growth through exposure to a global index, without the risk of losing money. By offering a secured return of 15 percent over five years, as well as an enhanced allocation of 3 percent upfront at the trade date of the investment plus unlimited enhanced growth potential through a multiplier effect, the Momentum Enhanced Growth Option is a solution that offers the best of both worlds in the current uncertain economic landscape.”
Regarding fees, Adam says that the Momentum Enhanced Growth Option is inclusive of adviser fees. “A maximum upfront adviser fee of 3 percent is included, but the financial adviser may choose to take less, which means extra growth potential for investors.
For example, she says, if a financial adviser and client agree on an adviser fee of 2 percent, an additional 1 percent of the investment value will be added into the investment component. The additional 1 percent will then participate in all features of the investment component
BUSINESS REPORT ONLINE