Smart Defensive Strategy One: Take Profit now - remain invested using Alpha RESULTS
For clients that are looking to protect the growth in their equity portfolio but to remain exposed to the upside in the market – at the same time as protecting their downside:
CASE STUDY 1: Alex and Mia are aged 48 and 53 and are, like most accumulators, not feeling happy with the level of their retirement savings. They had $350,000 invested in their SMSF prior to the GFC and saw their account balance fall to $225,000 by the end of last year. They predominantly use direct equities in their portfolio and of the $225,000, $150,000 was held in Australian blue chip shares. The value of their portfolio has now risen back to $310,000 (of which $275,000 is held in their direct equity portfolio) and they are anxious to lock in the value of this direct equities component at current levels. At the same time they need to continue to generate strong returns in their portfolio, so they are not wishing to increase their allocation to cash or term deposits.
You advise Alex and Mia to sell down $100,000 of their direct share portfolio and to invest that amount in Alpha RESULTS Series E ($100,000):
- Alpha RESULTS Series E is a 12 month investment referenced to ANZ, AMP, RIO, SUN and WDC with an unconditional fixed income of 20% pa payable each month, and capital protection against share prices falling by up to 40%.1
Over the next 12 months the Australian share market remains volatile including further falls to 4300 points, and at the end of next year the ASX 200 is trading at 5000 points (ie a 500 point or 11% increase from current levels of around 4500 points). That would mean that the direct share portfolio (worth $275,000 today) held by Alex and Mia would have been worth $305, 250, had they done nothing and simply retained their existing portfolio.
Instead, by investing in Alpha RESULTS Series E Alex and Mia’s portfolio will be worth :
- Of the $175,000 that remained invested in direct equities, that component will now be worth $194,250
- The Alpha RESULTS Series E investment will pay a fixed and unconditional income of $20,000, after tax at 15% this will equate to $17,000, and the original amount of $100,000 invested in Alpha RESULTS is returned in full
- Alex and Mia’s portfolio is now worth $311,250, ie a net gain of $6000 compared to doing nothing.
IN THIS EXAMPLE, ALEX AND MIA HAVE CREATED AN EFFECTIVE CONDITIONAL CAPITAL PROTECTED COMPONENT FOR 30% OF THEIR PORTFOLIO BUT HAVE NOT SUFFERED ANY FINANCIAL DETRIMENT IN DOING SO – EVEN AFTER SWITCHING INTO $100,000 OF ALPHA RESULTS, THEIR OVERALL PORTFOLIO OUTPERFORMS THE “DO NOTHING” SCENARIO.
© Alpha Structured Investments P/L AFSL 290054 - Like all investments, there is no return without risk. If there are losses in relation to Alpha RESULTS, the value of the shares delivered to investors may fall or be nil. Investors should read the Supplementary Product Disclosure Statement for Alpha RESULTS dated 3 November 2009 and issued by Citigroup Global Markets Australia Pty Limited (“CGMA”) in full and carefully consider the detailed description of the arrangements and risks in the Product Disclosure Statement (“SPDS”) before deciding whether to apply for Alpha RESULTS. Prior to the maturity of the Alpha RESULTS investment the value of Alpha RESULTS will be affected by various market factors such as interest rates, shares and option prices and volatility, the credit worthiness of CGMA and the time remaining to maturity. As a result and as indicated above there is no assurance that an Alpha RESULTS investor that sells their Alpha RESULTS investment prior to maturity will receive a price equal to or in excess of the Alpha RESULTS investors original investment amount. No conditional capital protection is provided to Alpha RESULTS investors if they sell their Alpha RESULTS investment prior to the maturity date. A copy of the SPDS can be obtained by contacting your financial adviser, stockbroker, Alpha Structured Investments or the Issuer. Like all investments, investments in the Alpha RESULTS involve some risks. The risks include general market risks and risks which are specific to Alpha RESULTS. Please ensure you have read and understood the Risk Factors which are set out in that SPDS. No action should be taken on the basis of or in reliance on the information, opinions or conclusions contained in this document. In preparing the information in this document, Alpha Structured Investments did not take into account the investment objectives, financial situation or particular needs of any particular investor. Before making a decision to invest, investors should consider the appropriateness of the product having regard to their relevant personal circumstances. Investors should read the SPDS in full and carefully consider the detailed description of the arrangements and risks in the SPDS before deciding whether to apply for Alpha RESULTS. This document is not, and is not intended to be, an offer or invitation for subscription or sale, or a recommendation, with respect to any proposed offering of Alpha RESULTS or any other securities, nor is it to form the basis of any contract or commitment. Once you have read and understood the SPDS you can apply by completing the Application Form in the SPDS and sending it to your financial adviser or directly to Alpha Structured Investments. The minimum application amount is AUD 20,000 with multiples of AUD 5,000 after that. You should consult your investment adviser before you invest in Alpha RESULTS. Capitalised terms in this Flyer will have the same meaning as given to them in the SPDS.
