JB Global - 100% LVR, 100% capital protected, ASX 200 fund, 4.5% interest

Hey guys I'm seriously considering investing in this and would love to hear peoples views. It almost seems too good to be true.

"The JB Global ASX200 Income & Equity Accelerator Investment is designed to give investors exposure to the Australian sharemarket combined with capital protection at maturity. Combined with a limited recourse loan and interrest rates at only 4.5% p.a, it is one of the most attractive capital protected investments in the market.

Features include:

S&P/ASX200 exposure
3 year term
100% capital protected at maturity
100% lending at 4.5% p.a - yes 4.5%!
Income potential up to 7.2%* p.a for the first 2 years
Up to 150% exposure to the S&P/ASX200
No credit checks or lending criteria
One simple and easy application form to complete
Limited Recourse loan also suitable for SMSF’s
No ongoing management fees"


Lonsec's independent view - http://www.jbglobal.com.au/images/stories/Lonsec_Research.pdf
Yes the fund is geared internally I believe. It has a feature that will increase it's exposure to the index depending on the volatility of the market (and reduce it right down to 0% exposure if the volatility reaches 30% (i.e. a freefall)).

There is a good graph explaining it in the PDS. I was told this was the most effective risk mitigation feature of the product.

Why is it called an income and equity accelerator?

Is it predominantly an income fund, growth fund, or balance fund?

Why is the income up to 7.2% for the first 2 years only?

(Sorry I haven't read the PDS etc.)
It's balanced to me.

The product only runs for 3 years.

End of year 1 is 7.2% paid out (well 8% minus 10% performance fee) plus growth reinvested.
End of year 2 is 7.2% paid out plus growth reinvested.
End of year 3 the whole thing is paid out.
The interest needs to be prepaid up front together with a 2.2% entry fee. So basically it's 15.7% of the amount invested (similar to a 10% deposit and 5.7% costs associated with buying another IP).

If the sharemarket has average performance then that would be repaid after the end of year 2.
I must read the PDS and lonsec report when I'm free. But fundamentally, I don't believe high gearing into a balanced/''best of both worlds'' type share fund makes huge sense. It reminds me of some of Macq. funds and Navra funds. I can see how it could be marketed to make sense though. But don't let my negativity get in the way of a potentially good investment!
Can you share why? I was looking at the Navra one in Feb 2009. I missed out on 50% growth so far. Imagine if you put a $1m into that...

In the past these products have either been expensive or used to 'dress up' a crappy underlying asset. This is 4.5% and an index fund.

I've never liked shares before due to lack of safe gearing but I really like this one.
My calcs showed an internal rate of return double that of a comparable property investment. With no tenant hassles!
The history of these threshold managed (CPPI) type products has been pretty poor, with most of them sitting in cash when the market rebounded due to the high vol of recent times. But you may say that the probability of going back to that sort of vol is low, so the risk of being threshold managed is low. But that being the case, do you need to buy protection? Just gear up!! But granted, this is a cheap way of gearing.

Relatively good way of gearing in a SMSF though with the protection/limited recourse nature being required for SMSF.

I'd be more concerned about the underlying asset. Cap weighting as a portfolio construction methodology makes no sense to me. Even a simple equal weighted index outperforms a cap weighted index on most occasions. But that is a whole other discussion.

Why is it called an income and equity accelerator?

Is it predominantly an income fund, growth fund, or balance fund?

Why is the income up to 7.2% for the first 2 years only?

(Sorry I haven't read the PDS etc.)

because it sounds 'cool' and exotic
Alterntively it could be called the 'attempting to create higher returns through high levels of debt which we attempt to hedge to create a situation where at the end of the period at a minimum you should get your capital back unless the backer goes into administration upon which you are not guaranteed anything'
I was looking at the Navra one in Feb 2009. I missed out on 50% growth so far. Imagine if you put a $1m into that...

"The Market" is up over 50% since Feb. Why not simply buy in your own right and cut out the "suits"? BHP on it's own is up that much. Rio is up from 30 to 70. I personally don't keep score but one broker account is up X2.5 another X3 (approx).

Without the benefit of 20X20 hindsight who was about to dump a mil into the market early in the year? You would have needed big cojones to BORROW that money to invest back then.
David, do you have an interest in this? Sorry but it doesn't look kosher.

Your original post was scant on details, Why? It could not have been to save typing because you have done nothing else since.

Over 90% of queries on SS lack enough detail for an intelligent reply to be made. Some respondents make assumptions and things run off the rails with the original poster taking offense at some of them.

You asked about a complex derivative. Without detail any reply falls into the GIGO basket.
Totally new to all this so excuse my ignorance.
10% performance fee seems a lot to me, is this to make up for the fact they don't charge ongoing management fees? Or is this a normal amount?

Also the PDS took me almost 40 mins to read (and not entirely thoroughly) but there did seem to be a lot of 'butt covering' for them. Almost to the point of saying, look it's really not that great, don't expect too much maybe just not do it?? Or is that just me?

So for 50,000 units you need about $8000 upfront right? Ah well, I don't have that sort of $ anyhoo... :(
I haven't read the pds.... so... how does the capital protection work?

There was a product like this getting around a few years ago that put about 70% of the fund into cash and this was the 'capital protection'. The cash would grow back to the full value over the time of the product - something like 10 years. HOWEVER - the other 30% was geared up and put into the index - if this crashed anytime in the first few years the whole thing was shut down and you relied on the 70% growing back to 100% over the next 8 years... with no chance of any further kicker.
This is not a traditional CPPI nor bond/call capital protected product and its not a fund either. You are buying a vol stabilised call option over the Index for 3 years, offered through a DPA loan structure so investors can get their deductibility each year though you are paying for it all in one lunp sum hence theres no credit checks. The 1st series, which was open in Sept was even cheaper at 3.9% a year. This is because the cost of the option has gone up since then and will continue to do so as rates increase and volatility decreases. That is the nature of the vol stabilised option. For a IRR of around 5%, much less on a post tax basis, its not a bad punt on the ASX 200. The product must be structured such that it pays a coupon otherwise, you won't get your tax deductions on the interest. A few other firms have similar leveraged products on issue where you are simply buying exposure through calls - Freeman Fox, Instreet, Alpha Invest. I don't think you will see many CPPI products in the market again in the near future. The Performance Fee actually cheapens the product for the investor because it means the adviser only gets paid if the index performs as opposed to traditional funds where a standard MER applies regardless.
.... It almost seems too good to be true.
Where's the risk ? The possible rewards are highlighted, but not the risks. You (& your lawyer?) need to read every clause in the PDS to find those risks.

If there's no risk & no capital required, why are they offering it to us plebs ?