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

Do you know what? My husband is all keen about this now when I gave him a brief overview (I was being very sceptical as I told him). - don't know where he thinks we have the money, though :rolleyes:.

They seem big on insurance on the website so a concern would be they hassle us to get their insurance products if you went ahead. Maybe thats why it's offered to us so they can get their claws into us?

Yes, what are the risks? I understand you could easily end up losing the intial outlay for the prepaid interest. Does this affect your credit rating or anything if it were to happen? They couldn't take more than that surely.

Hmmm, more research to do....
 
Ask your broker/advisor how to do it but you can buy a portfolio of a few stocks (Commsec have some products where you simply buy the parcel) and guarantee your capital by buying long dated puts on it. (I think) this is my independent streak showing. :)

But if another 50% was guaranteed next year, the markets would show 40% of that already (that's the informed market principle). I'm a worry-wort but I think next year will be very turbulent and I would be getting out of all but my gold stocks (if I had any others). Actually, if you want a cap guarantee just buy gold, the metal. It will definitely increase over the next few years.

I'm always sceptical about products that I don't understand, packaged by suits. And no way would I be leveraging into this market. Everything is richly valued. That especially includes the banks which are so popular on this board.

You could even buy PWK @ $5.88 and sell it into a takeover @ $6.40 next April.

The usual disclaimer applies: This post is for entertainment only and should not be construed as investment advice. Anyone to takes advice from a fish is sillier than he is. :D
 
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"

http://www.jbglobal.com.au/www.jbglobal.com.au/index.php?option=com_content&task=view&id=154&Itemid=

Lonsec's independent view - http://www.jbglobal.com.au/images/stories/Lonsec_Research.pdf

First impression:

Seems to good to be true.

Borrowing at 4.5% to be fully geared with a non-recourse loan? How do they manage that?

As Keith said: where is the risk?

The first link you posted doesn't work.

This "independent" review, who paid for it? Why is it from the fund manager web site. How independent can it be?

What is your relationship with this product:
  • Have you bought it into?
  • Are you linked in any way to the fund manager or its salespeople?

You talk about an IRR double a residential property. Do you mind sharing your calculations? Can you post a spreadsheet to explain how you arrived at that?

Thanks,
 
"The Market" is up over 50% since Feb. Why not simply buy in your own right and cut out the "suits"?

Because I don't have $1m spare cash. This product was a 100% lend.

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.

I had my product application filled out but I lost my job. No job = no loan. Same style product but through Navra, ASX50 fund and 8% interest with capital protection.

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.

It was to save typing. I'm working in Perth over a dodgy iPhone tethering connection. Can you explain what you meant by 'not kosher?'.

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.

Agreed, I could have been more specific. Not knowing much about these type of products (hence the question) I'm not sure what to look out for in this.

It still looks very good to me.

- High gearing,
- Safety net of the protection,
- Simple ASX 200 index fund (which I'm a fan of over an active fund),
- Cheap interest rate

Sure Merrill Lynch may go bust and the protection is null but that's the worst of it I see.

$78k will give me $500k of exposure over 3 years.

The next five years after every crash in history has always been stellar.
 
Compare $78k would be 10% deposit + 5% costs on a $500k property. The net yield on the property would be more like -1% though.

In this example at 7.2% return the shares net $692pw. Much higher than your typical $500k residential property would (a 2 bedder in inner Melbourne would return about $450pw gross).

I think Shares will do the same or better than property for the next 3 years. Also I am about 98% property so far and I need some diversification.

Funny thing is I'm just about to settle on one of those so I'll be able to do a direct comparison of the performance.
 
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.

Thanks for the post asdf. You've got a good understanding of the product. Yes it's a pity I didn't get in at 3.9%, never heard of these guys then.

Can you show how you get an IRR of 5%? I get around 40%. I'll put up my spreadsheet too. Depends on performance of the ASX of course.

The way it was explained to me was that at the internals of the fund it's a call option with a bond (for protection), but it seems like you know more about this stuff than I do.

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 ?

There is capital required. You must prepay all 3 years interest plus the 2.2% entry fee. These funds are at risk.

Yes, what are the risks? I understand you could easily end up losing the intial outlay for the prepaid interest. Does this affect your credit rating or anything if it were to happen? They couldn't take more than that surely.

Credit rating would be fine.

First impression:

Seems to good to be true.

Borrowing at 4.5% to be fully geared with a non-recourse loan? How do they manage that?

As Keith said: where is the risk?

The first link you posted doesn't work.

This "independent" review, who paid for it? Why is it from the fund manager web site. How independent can it be?

What is your relationship with this product:
  • Have you bought it into?
  • Are you linked in any way to the fund manager or its salespeople?

You talk about an IRR double a residential property. Do you mind sharing your calculations? Can you post a spreadsheet to explain how you arrived at that?

I believe all of the risks are listed in that Lomsec review (and in the PDS). I posted the info up here to see what else they may be missing.

Yes, I don't know too much about who/what Lomsec are, but am told they are one of the largest independent research groups in this area. Can someone with more knowledge of funds etc help here?


@HouseKeeper

1. No, but I am seriously considering it. I have filled out the application form. It's buying into the ASX 200 so even if I was in it there would be no incentive for me to encourage others to do so anyway. Part of the reason why the rate is so cheap is because it's a closed fund, you only have one chance to buy in and that's ended very soon (Dec 12th), so I would imagine very little people here could mobilise funds anyway.

2. I receive no financial incentive, reward, nor am I linked to the company, fund manager or its salespeople in any way other than being a potential customer.

I need to fix it up a little (I miss calc'd the performance fee, but it's still double IRR), but sure, I'll post it up.


Here are the risks as listed in the PDF:

Risks

An investment in the Units carries a number of
standard investment risks associated with
investment markets. These include performance,
leverage, counterparty, dividend and tax risks. These
and other risks are outlined in the PDS and should be
read in full and understood by potential investors.
Lonsec considers the following to be the major risks:

• Performance Risk – The performance of the Units is
linked to the S&P/ASX200 Price Return Index
performance. There is no guarantee that the
performance of the Index will be such that an
investment in the Units will increase in value over the
investment term.

• Leverage Risk –Advisors should be aware that there
is leverage built into this product when exposure
levels to the Reference Index exceed 100%. Advisors
should note potential gains and losses are magnified
by this leverage.

• Counterparty Risk – Investors are exposed to the
creditworthiness of Merrill Lynch Australia Futures
Limited as Unit returns are dependent on Merrill Lynch
(Australia) Futures Limited performing its obligations as
they fall due. Merrill Lynch (Australia) Futures Limited is
a fully owned member of the Merrill Lynch & Co Group
and. The payment obligations of Merrill Lynch
(Australia) Futures Limited in respect of the Unit are
guaranteed by Merrill Lynch & Co Group. As at
August 2009, Merrill Lynch & Co Group long term
credit ratings are A by S&P, and A2 by Moody’s.

• Early Termination Risk – The Issuer has wide
powers under the Units to determine the value of the
investment. This can occur where there is an
adjustment event such as the cancellation of an index
or where an index sponsor makes a material change
to the method of calculation. Any early termination
voids the capital protection and can potentially result
in a capital loss.

Sorry about the link - looks like it's broken now. Lucky I got a copy of it (see first post).

Just try the main page - http://www.jbglobal.com.au/

Hopefully this product hasn't been withdrawn (like others have) or the rate increased.
 
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Hey I found a link that works! - http://www.jbglobal.com.au/general/general/asx200-income-equity-accelerator-series-2.html

Sure Merrill Lynch may go bust and the protection is null but that's the worst of it I see.

Note - "As at August 2009, Merrill Lynch & Co Group long term credit ratings are A by S&P, and A2 by Moody’s." (although I know these days anything can happen).

I also found this on Lonsec. It reviews Lonsec highly.

It's from a group / magazine called 'Money Management'. Again, it's level of 'independence' to me is unknown. Has anyone heard or know of Money Management?
 
I'm always sceptical about products that I don't understand, packaged by suits.

Good point.

The investment bankers get paid a lot & charge as much as they can get away with. It's not a 'nice' industry.

You need to read the PDS very carefully. Could be some hidden traps in there.

Cheers,
 
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.

Hi. The captial protection doesn't work like that.

Basically they buy a bond for the guarantee and a call option for the growth.
 
4.5% interest pa x 3 years + a 2.2% entry fee = 15.7% of sum invested.

$157,000.

If the fund achieves it's goal of 7.2% coupon payment that's $72,000 returned to you at the end of year 1, and another at the end of year 2 which should have that all paid off. So you basically get the growth component only during years 1 and 2, then the full performance of year 3 (growth + yield) - say 11%? Is that the stockmarket average? Within 5 years after a crash I'd argue the average is much higher.
 
David, I wouldn't count on a coupon value of 7%. Have a look at the Lonsec research that highlights 3 scenarios. In 2 of the 3 scenarios the second coupon value is 0. If the fund pays a high coupon, it can't recover any potential losses at the end as it provides a guarantee. I don't expect a high coupon. Expect 1% & you won't be disappointed.

Have a look at the PDS on page 15. There is a very interesting graph there. It shows you what the product would have returned if it had been bought anytime in the last 15 years.

Keep in mind that your capital at risk there is the upfront interest payment + fees, about 15% of the nominal value.

During most of the 15 years, the return was 0. ie: you lost your initial payment.

Between 1995 and 1997 (mini-boom), you might have get a bit more than the 15% you put it.

The only really good period was 2005-2007 (strong bull market), where the return was above 50%. You tripled your money in 3 years. Pretty good.

So essentially, it seems that this product will only generate a positive return if we have a strong bull market (ie > 20% up per year) in the next 3 years. We might, although the market is already up quite a bit from its low earlier this year. If the market only rise gently, say 10% per year, you are still likely to lose your initial payment. :eek:

The returns look very much like the returns of a call option. Those who want to punt on the ASX might be better off buying a long-term call option. At least they won't pay for all the overheads of this structured product.

I'm actually surprised at the honesty shown in the graph on page 15. Maybe it's a new regulatory requirement.

Cheers,
 
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Thanks for the comment House Keeper - I will check that out! Kudos to you.

Yes I was interested to know if the fund only achieved 7% how would that be split between growth and income. Looks like it would be all growth. I thought it would be 50/50 split. A question I'll put to them.

My initial thoughts are that this thing has to make some money though - they get paid a 10% performance fee so if it doesn't perform they don't get anything other than the 2.2% entry fee which from my understanding would barely cover their costs of putting this product together.
 
Actually I was wrong. I underestimated the coupons.

Have a look at the coupon payments on page 17. You need to take that into account.

Although far from guaranteed, it was paid most of the time.

It looks like in a gently rising market (10% year), you will get a decent coupon. You'd be close to get your initial investment back.

Cheers,
 
My initial thoughts are that this thing has to make some money though - they get paid a 10% performance fee so if it doesn't perform they don't get anything other than the 2.2% entry fee which from my understanding would barely cover their costs of putting this product together.

The entry fee & performance is for the financial adviser (ie, salesperson) selling the product, not for the fund manager.

The fund manager will get paid not matter what, don't worry about them.

Otherwise they wouldn't have created the product.;)

Cheers,
 
Actually I was wrong. I underestimated the coupons.

Have a look at the coupon payments on page 17. You need to take that into account.

Although far from guaranteed, it was paid most of the time.

It looks like in a gently rising market (10% year), you will get a decent coupon. You'd be close to get your initial investment back.

Well you'd also get 2% growth on the portfolio in years 1 and 2, then 10% growth in year 3.

If the market rose 10% each year on $1,000,000 you'd get

Year 1
Income: $80k coupon - 10% performance fee = $72k coupon.
Growth: $20k growth - 10% performance fee = $18k growth.
New portfolio value $1,018,000

Year 2
Income: $81.4k coupon - 10% performance fee = $73.3k coupon.
Growth: $20.4k growth - 10% performance fee = $18.3k growth.
New portfolio value $1,036,324

Year 3
Income: None
Growth: $104k growth - 10% performance fee = $93.3k growth.
New portfolio value $1,129,593

Pay out loan -$1,000,000
Equals $129,593 payout

Total funds returned to investor
$72k coupon
$73.3k coupon
$129.6k payout at end

= $274.9k return on $157k year 0 investment

Internal Rate of Return = 30.305%*

(* based on sharemarket performance of 10% each year and using this online IRR calculator)
 
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