What are structured products?
Structured products are fixed-term investments, with set maturity dates, that offer investors predetermined payoffs, provided a set of specified conditions are met. The payoff conditions clearly list the market performance scenarios under which the structured product will make money and the scenarios under which it will lose money. Structured products are well suited to volatile market conditions as they offer a blend of risk protection against markets falling, with attractive returns when markets perform.
While the potential for enhanced returns at reduced risk is something of a holy grail in investing, it is important to first understand how structured products meet the dual requirements of stability and return in uncertain times.
Why now?
Structured products offer the stability and certainty of returns that investors need in times like this.
With current ongoing market volatility, geopolitical tension, trade disputes and persistent inflation, investors are uncertain about where to invest their money.
While 2023 surprised many with indices like the Core MSCI S&P 500 delivering returns of more than 25% (USD) when the world anticipated a recession, the structural shifts currently underway make this one of the most uncertain environments in history. The narrow stock market rally in 2023, led by a mere handful of mega-cap American tech companies proved that the world has entered a new period of Great Unknown, where a new investment regime is now at play. Structured products offer the stability and certainty of returns that investors need in times like this.
Regardless of the payoff profile, structured products are designed to complement diversified investment portfolios as they often offer investors exposure to different asset classes, geographies, and currencies. Diversification is particularly important in volatile market conditions to reduce overall risk and to not rely on one type of asset to provide returns.
Examples of structured products
Discovery Invest offers a range of structured products for different risk appetites, preferred currencies and desired levels of market exposure. Discovery Invest’s extremely popular Discovery Capital 200+ structured product pays investors a 100% gross return on investment after five years if the underlying global share portfolio is flat or positive. Investors will also have peace of mind from the downside protection offered, where they will receive their initial capital back if the underlying global share portfolio provides a negative return, however, the downside protection falls away if the global share portfolio falls by more than 30% during the five-year period. All returns and downside protection mentioned are before the effect of fees and taxes.
This structured note exposes investors to the performance of equity markets in Europe and the United States as the underlying global share portfolio comprises 20 quality European and US companies.
Discovery Invest has 14 open tranches of this structured note and six mature tranches. At the end of February 2024, all 14 open tranches were in line to give investors a 100% return.
In terms of those already matured, the investors in five out of the six tranches received a 100% return on their investment over the five years, before fees and taxes, outperforming over 99% of all listed funds in South Africa. The March 2015 tranche, which matured at the height of the COVID-19 crisis (March 2020) has provided investors with much-needed downside protection.
Enhanced structured notes developed due to high demand
Discovery Invest has launched a new and enhanced version of this popular structured note, the Discovery Capital 200|300+. The Discovery Capital 200|300+ products pay a 100% gross return on investment after five years if the underlying global share portfolio return is flat or positive over the five-year period. In addition, if the global share portfolio grows by 40% or more over the same period, investors will get an extra 100% growth! Investors also get downside protection for falls in the global share portfolio of up to 30%.
Discovery Invest has the April, July and November 2023 tranches of the Discovery Capital 200|300+ open. They are all in line to give investors a 100% return before the effect of fees and taxes. The company also recently launched an April 2024 tranch. The tranch is open for investment until 19 April 2024.
Discovery Invest has launched several other structured products over the years, such as the Discovery Dollar Capital +, the Discovery Dollar Capital 50|50 and the Discovery Enhanced Yield Fund. Many of these tranches provided investors with significant returns or are still in line to do so.
Disclaimer
Growth, conditional downside protection or any other resulting return is before the effect of advice fees, Discovery admin fees and taxes where applicable. These fees and taxes will affect the final return.
The downside protection falls away if the global portfolio falls by more than 30% from its initial level at any point during the five year investment period.
Please note that the boost will not apply to the Discovery Capital 200|300+ Fund if your client’s investment was previously in funds that did not qualify. The full boost pays out over 10 years, with a portion payable after five years. Please see the Endowment Plan fact file for the full terms and conditions of the boost.
The Discovery Capital 200|300+ is not a unit trust. Therefore, this fund is not regulated by the Collective Investment Schemes Control Act 45 of 2002.
This document is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser. Discovery Life Investment Services Pty (Ltd), registration number 2007/005969/07, branded as Discovery Invest, is an authorised financial services provider. All life insurance products are underwritten by Discovery Life Ltd, registration number: 1966/003901/06, a licensed life insurer and an authorised financial services provider and registered credit provider, NCR registration number NCRCP3555. All boosts are offered through the insurer, Discovery Life Limited. The insurer reserves the right to review and change the qualifying requirements for boosts at any time. Product rules and terms and conditions apply.
The growth over five years, before the effect of fees and taxes, represents the return of the Discovery Capital 200|300+ as a fund within the Endowment Plan and is; therefore, before the effect of any Discovery administration fees and initial and ongoing financial adviser fees, if they apply. Information contained in this document is indicative. The final terms depend on the market conditions on the date of trade and will be defined in the term sheet. Investors are also subject to any default risk or restructure of the issuer BNP Paribas Arbitrage Issuance BV and the guarantor BNP Paribas SA.
