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:
- 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.