In light of SRP's upcoming inaugural Africa Structured Products and Alternative Investments conference, we spoke with Brian McMillan (pictured), head of sales for retail structured products at Investec in South Africa, about the bank's position in the region, its products and clients and his expectations for the coming year.
What is Investec's scope and goals in terms of structured products?
Our aim is to be the largest provider of retail structured products in sub-Saharan Africa. We aim to achieve this by offering exposure to both local and global products to our clients. While we started predominantly as a retail provider, in recent years our scope has widened to include funds. We are also a market leader of IFA services.
Our primary concern is providing the sub-Saharan investor access to offshore markets in an easy and straightforward fashion. One of the typical problems our investors face is limited access to foreign markets due to numerous exchange-controlled restrictions. We try to enable investors, looking to get access to offshore markets, to do so with confidence via our capital-protected structured products.
Over the past few months we have been focused on our Titans product series. These are denominated in US dollars and offer 100% capital guarantee with a guaranteed 5% return, however, going forward, we want to look at products that offer upside gearing, but a relatively low cap, for example, a 10x gearing, with a cap at 10%.
What is the profile of Investec's clients, and what are their views of the market?
Our clients are typically high net worth individuals looking for alternative asset classes, beyond the traditional vanilla classes that dominate wealth management. In particular, in the wake of the 2008 crisis, South African investors have become more wary and many are looking for the safety of fixed deposits combined with exposure to equities, which is what structured products tend to offer.
In the short term investors are looking towards the US election. So much so that our next product line has been designed not to trade until after the elections. We are very cognisant of volatility ahead of the vote in the US. The potential fallout of a hard Brexit is also high on investors' radar.
Would South African investors shift focus to domestic products, in light of risks globally?
South African investors will certainly maintain their strong interest in offshore markets. This is because, historically, they have been faced with exchange controls and are overinvested in the South African market. Because of its performance and its nature, a lot of the money will focus on US equities and the US dollar, rather than in the UK or EU.
Five years ago, about 60% of our products were on foreign securities, whereas this proportion is about 70% currently. However, with risks coming out of Brexit, the lack of growth in Europe, and the underperformance of the South African market over the last few years, I expect investors will look to increase South African exposure. Offshore will remain the largest part of our business, but right now we expect domestic products to be more in demand during the upcoming year.
On the other hand, the South African market has been, until recently, characterised by the falling rand. This has now stabilised and is significantly off its lows. So there's an opportunity for investors to move money offshore.
What are clients' expectations for the coming year?
With equity markets in the UK and US pushing all-time highs, people are starting to become somewhat wary, and going into 2017 we expect higher demand for capital protection and lower returns.
Investors certainly still believe in equities, even at these levels, but that's primarily due to the extremely low interest rate environment globally and the commodities' slump. It is likely that rates in the US will rise slightly in 2017, but it will be years before hikes start in the EU or UK, so I don't see investors moving into commodities or fixed income in the foreseeable future.
The first SRP Africa Structured Products & Alternative Investments conference 2016 will be held at the Hyatt Regency Hotel in Johannesburg between 16-18 November 2016. See link for details.
Accumulators perform in range bound markets, Standard Bank
SRP Africa 2016 Awards Shortlist: Providers, Distributors and Service Providers revealed
South Africa Market Review - Q3 2016
Product snapshot: Accumulators strengthen Standard issuance in South Africa