Portfolio Strategy – How to retain cash yet gain market exposure

Using Instreet Masti you will be able to gain an exposure to the Australian, US and pan-European stock markets at a cost which is just a fraction of your notional exposure.  This approach allows you to retain a high cash balance, which will earn interest and reduce the overall cost of your equity market exposures.  Retaining cash also provides you with the opportunity to buy into the stock market in the event it sustains a significant fall. 

You are not locked-in to making Finance Cost payments on the Masti investment beyond the first year, which provides the unique flexibility to ‘walk-away’ if the Reference Index falls.  The uncapped upside exposure provides your portfolio with the potential for positive returns if the selected Reference Index continues to appreciate over the investment term.

Instreet Masti allows you to diversify your portfolio

Instreet Masti allows you to retain a high level of cash

A Worked Example

• You have $528,050 cash holding in your SMSF (accumulation phase - tax rate of 15%).

• Although you are nervous about the share market you are prepared to use some of this cash balance to obtain an exposure as you are attracted by the growth potential of shares. You would prefer to maintain a cash holding of around $500,000. You will earn around $20,000 p.a. or 4.0% on this cash balance, assuming you invest in lower risk income bearing assets such as a blended portfolio of Hybrids, TD’s and Cash.

• We recommend you use the remaining $28,050 to make your initial Finance Cost payment for an investment in Instreet Masti, which will give you $300,000 exposure ($9,350 Finance Cost & fees for every $100,000 of exposure) into either ASX200, Euro Stoxx 50 or the S&P500.

• In the second and third years you are entitled to a $0.04 per Unit fixed coupon (as long as you choose to retain the Masti investment by continuing to pay the annual Finance Cost). This will be a receipt of $12,000 on your $300,000 exposure which we recommend you offset against the annual Finance Cost payments. This will reduce your ongoing cash outlay to $10,050 in each of years 2 and 3.

Outcomes

• You were able to retain the majority of your capital in income assets earning an average of 4% p.a.

• The $28,050, which represents 5.30% of your portfolio value, provided $300,000 of exposure to the ASX200/EuroStoxx50/S&P500, giving you the ability to participate in equity market upside.

• Importantly, in the worst case scenario outlined below, i.e. the ASX200/EuroStoxx50/S&P500 are all lower at the end of year three, you will still have no less than $534,481 total portfolio value. i.e. The strategy we have recommended ensures you have increased your portfolio value over the 3 year term.

• In the event the market is higher, you will receive the full benefit of your leveraged exposure to the ASX200 / EuroStoxx50 / S&P500 as well as the returns from your Lower risk income generating assets.

Potential Outcomes

1)      Masti Reference Index falls (by any amount)

In the example term sheet shown in Appendix 1, we assume the Reference Index is 30% lower at Maturity. In that situation you would not receive a final coupon, however your portfolio would still be valued at $534,481 at the end of the maximum 3 year Masti investment term.

2)      Masti Reference Index increases by 30%

In the example term sheet shown in Appendix 2, we assume the Reference Index is 30% higher at Maturity. In this outcome you would receive a final coupon of $66,000 and would also benefit from the income bearing assets resulting in a total portfolio value of $593,889 at the end of the maximum 3 year term.

Summary of the strategy

You have protected the downside risk to your capital by maintaining a cash holding of $500,000. You have concurrently ensured that you get the benefit from equity market upside over the maximum three year investment period; providing an effective win/win in difficult market conditions.

It is also important to note that the walk-away feature of Masti creates a unique opportunity. In the event that a significant fall in a Reference Index occurred after the Commencement Date, you have the ability to ‘walk-away’ from the Masti investment without penalty. In the event of a significant market fall, we are likely to recommend that you enact this walk-away feature and commence a new investment. This would allow you to ‘reset’ the investment at the lower market level. You would then be in a position to benefit from any market rebound that may occur from this lower level.

Important Information

Purpose of Document:  The purpose of this Document is to provide indicative commercial terms only.   The Documents commercial results are based on assumptions that may not be realistic.  They are indicative only.  Markets and market assumptions can change from the time and the commencement date of the Instreet Masti DPA product.  Due care and attention have been used in the preparation of this document. However, actual results may vary and any variation may be materially positive or negative.

Document: This Document has been prepared by Instreet Investment Australia Limited ABN 24 622 827 589 (Instreet), a corporate authorised representative of AFSL 434776, and is current as at 12 August 2021. 

Issuer and PDS: The Instreet Masti product is issued by Instreet Structured Investment Pty Ltd ACN 140 407 558 and the issue is arranged by Instreet. Instreet Masti is offered in a product disclosure (PDS) or Information Memorandum (IM). The relevant PDS or IM is available from Level 11, 2 Bulletin Place, Sydney, at the website www.instreet.com.au or by phoning 1300 954 678. In deciding whether to acquire or continue to hold and investment investors must first obtain the PDS and IM and carefully consider its contents.

General advice warning: The information contained in this Document is general in nature only. It has been prepared without taking account any potential investors’ personal financial situation, objectives or needs and the appropriateness of this information needs to be considered in that context. Advisers must form their own views on whether the Instreet Masti is appropriate after considering their clients’ objectives, financial situation and personal needs. We recommend you seek your own legal and taxation advice. The information may be based on assumptions or market conditions and may change without notice. This may impact the accuracy of the information. In no circumstances is the information in this Website to be used by, or presented to, a person for the purposes of making a decision about a financial product or class of products.

However, actual results will vary and any variation may be materially positive or negative.

No responsibility or liability is accepted by Instreet or any third party who has contributed to this document for any of the information contained herein or for any action taken by you or any of your officers, employees, agents or associates.

Past performance: Past performance is not a reliable indicator of future performance.