Boutique specialist Instreet has launched a structured product referencing the price of gold as it seeks to diversify its product range beyond the mainstream equity-based structures in light of improving investor sentiment.
"This product differentiates itself by paying the fixed income in return for the giving-up of the monthly gold price growth in excess of 5%," managing director of Instreet Investment George Lucas told SRP.
"This conversion of potential growth into a regular income stream is suited to investors who seek an income stream and who are less concerned with capital growth. In contrast to equity structured products or direct equities as a source of income, an investor can obtain this income stream without further increasing equity exposure."
The three-year structure, Instreet Gold plus Yield, is referenced to the spot price of gold. At the end of each semi-annual period, the product will offer a fixed coupon based on the level of the gold price, interest rates and market volatility.
According to Lucas, as an alternative way to hold an exposure to gold, this investment pays regular income and provides a cushion for any decline in the gold price. A gold exchange-traded fund or holding of physical gold, he said, would need to be periodically sold down to produce regular cash flow and would be exposed to the full downside without the benefit of any cushion.
Australian equities have benefited from the improved global economic outlook as opposed to the gold price, which has lost some of its appeal after a 25% fall despite sporadic rebounds over the last year. Retail investors have shown little interests in gold-linked structures with the last retail issuance in Australia being marketed in late 2011 by Macquarie (Flexi 100 Trust - Class AX Units).
"We recognise that gold polarises investor views probably more than any other asset," said Lucas. "This investment is designed for an investor with a neutral to moderately bullish outlook on the gold price. As the gold price has been quite volatile and traded down a long way from its high, some investors are seeing this as a good entry point."
Lucas added that a group of financial advisers have reported demand from investors who already hold gold, as well as those looking for alternative sources of yield as cash rates fall. "However, we do not yet have plans to introduce other commodity underlying for future issuance." he said.
According to SRP data, sales of commodity-linked products in Australia so far this year have decreased to AUD 35m ($33.5m) from two products, compared to AUD90m ($85m) collected during the corresponding period last year. The proportion of structured products featuring commodity underlyings also registered a considerable fall to around 5% of the total market size year-to-date.
The product will be on offer until mid-November.