Structured Equity Investments

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Structured Equity Investments

• High Yield Seminar

Greg Szwarc
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Agenda

• History of structured investments
• What are structured investments?
• Returns and risks
• Case Study - Westpac Performance Deposits

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History of structured investments

• First began in Australia in the early 1990s
• Explosion in the number of products and
  providers since late 2000
• Over 2 billion invested in Australia
• Mystery surrounding structured investments

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What are structured investments?

• Combine several asset classes to offer one final
  investment that has the characteristics of the
  embedded assets
• Generally offer full capital protection at term
• Investment term can vary from 1 month to 12 years
  
• Returns can be linked to various asset classes

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Returns and Risks

• Capital guaranteed - only at maturity!
• What determines the return?
• Can offer positive returns irrespective of market
  conditions
• Does it actually track the underlying asset?
• What is the opportunity cost?

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Case StudyWestpac Performance Deposits

• What are they?
• Performance Deposits allow investors to deposit
  their money with Westpac and link their rate of
  return to the performance of selected asset
  classes.
• A term deposit with a twist.

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Case Study continued...

• There are 2 types of Performance Deposits.
• Range Deposits - sideways
• Participation Deposits - bull or bear
• Both of these types of Performance Deposits can
  be linked to a choice of 3 markets
• Equity Market
• Currency Market
• Gold Market

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Case Study continued...

• Performance Deposits

Range Deposits
Participation Deposits
Equity Market
Currency Market
Gold Market
Equity Market
Currency Market
Gold Market
Sideways
Bull/bear
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Case Study continued...

• Features of Performance Deposits
• Short term Westpac deposits.
• typically between 1 and 12 months.
• Minimum investment 10,000.
• Capital is repaid in full if the Performance
  Deposit is held to maturity.

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Case Study continued...

• Range Deposits
• If reference moves outside of the range at any
  time during the term - earn low or no interest.
• If reference stays within the range during the
  term - earn a fixed performance rate of return.
• Relevant where investor has a view on the
  selected reference remaining stable for the term.

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Case Study continued...

• Participation Deposits
• Payment of return is linked to the market
  reference either rising or falling significantly
  during the term.
• Depending on investors view, they can select a
  Participation Deposit that participates in a rise
  or a fall.
• Investor participates to a set percentage of
  the rise or fall of the reference.
• Maximum percentage rise or fall may be set.
• If market does not move in the required
  direction, then low or no interest is payable.

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Case Study continued...

• Portfolio Construction
• Lets look at three different criteria
• 1. Risk/Return
• Opportunity cost - forego interest?
• Break costs if not held to maturity.
• Potential for higher returns than other
  traditional secure investments.
• Can provide a minimum fixed return for those
  investors wanting guaranteed payment of some
  return.
• Link investment returns to the performance of
  selected markets - capital protected entry into
  the workings of these markets.

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Case Study continued...

• Portfolio Construction
• 2. Asset Allocation
• Cash allocation - A compliment?
• Risk/Return profile
• Exposure to various markets

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Case Study continued...

• Portfolio Construction
• 3. Alpha
• Excess returns from cash!
• Generate alpha in a low return environment
• Possible uncorrelated returns

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Further Information

• Tools to get you started
• 1. Rate sheet available fortnightly
• 2. Application form in IM
• Please contact us on [phone]
• or alternatively visit
• www.westpac.com.au/structuredinvestments

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Important Notice

• Westpac Institutional Bank is a division of
  Westpac Banking Corporation ABN 33 007 457 141
  ("Westpac). The information contained in, and
  in relation to, this document is confidential.
  Recipients may not disclose or provide this
  document or information to any person, nor
  reproduce it, whether directly or indirectly,
  wholly or in part without the prior consent of
  Westpac.
• This document and the information contained in
  this presentation is of a general nature only and
  it is not intended to constitute investment
  advice or a personal securities recommendation
  nor is it intended to constitute an offer for
  sale of securities. This document is neither a
  prospectus nor a product disclosure statement.
  It contains a brief overview of the investment
  only. The information and presentation do not
  take into account the particular investment
  objectives, financial situation and particular
  needs of any potential investor. It remains
  subject to amendment or modification by Westpac
  at any time.
• Westpac, its directors, officers, employees or
  associates do not guarantee or give any assurance
  as to the performance of this potential
  investment or any particular rate of income or
  return.
• During the course of preparation of this document
  certain information was used and investigations
  undertaken to generate its content. Information
  used has come from publicly available sources and
  through discussions. Similarly, statements and
  analyses contained in this presentation may be
  based on a number of economic and other
  assumptions and must be interpreted in that
  context. No investigations have been undertaken
  to verify the correctness of this information
  (whether for accuracy or currency), nor is any
  representation or warranty given, express or
  implied, as to the reliability or completeness of
  the information.
• Before making an investment decision, potential
  investors should also consult a taxation and
  financial advsiser to take into account their
  particular investment objectives, financial
  situation and needs. No responsibility is taken
  for any or all liability which may arise in any
  way out of the provision to, or use by the
  recipient of this information or any other
  person, except to the extent that liability under
  any applicable law cannot be excluded.