Responding to the need to protect clients’ fixed-deposit investment returns against potential volatility, Investec Private Bank’s Treasury team has created HedgePlus, a six-month, prime-linked fixed deposit, designed to hedge against fluctuations in returns using three leading economic factors.
“We wanted to offer capital preservation with highly competitive income returns for our clients who face a certain amount of volatility risk investing in cash. HedgePlus allows investors to hedge against movements in the JSE/Actuaries all-share 40 top companies index [Alsi 40 index], the consumer price index [CPIX] and the price of petrol,” explained Les Scott, responsible for Investec Private Bank’s Treasury team in South Africa.
Scott said that clients investing a minimum of R100 000 for six months pay no bank charges, receive a fixed deposit rate linked to Investec’s prime lending rate and are given the opportunity to choose the factor with which to hedge against volatility.
When entering into the deposit, a hedge ceiling and floor are set for the chosen economic factor. If, at maturity, the value of the chosen economic factor is above the hedge ceiling or below the hedge floor, the client receives an additional 1% interest. The hedge ceiling and floor are set at levels that should be triggered in the event of any stock market or inflation or petrol-price volatility.
“For example, if CPIX moves above the hedge ceiling, prime interest rates may increase and the client will receive an additional 1% interest over and above their potentially higher prime-linked deposit rate.
“Conversely, if CPIX is below the hedge floor, interest rates may decrease and clients are compensated for the lower return on their cash with an additional 1% interest,” said Scott. “The same logic applies to the price of petrol and the movements of the Alsi 40 index.” — I-Net Bridge