cil kinesis presentation - v1 01-09 10
TRANSCRIPT
Capital International LimitedKinesis
Antony Kelsey
This presentation is intended for FSA authorised persons, high net worth individuals and professional investors
Agenda• Introduction to Kinesis
• History of the market
• Advantages / Disadvantages of the market
• Dismissing the stereotypes
• Kinesis in detail
• Kinesis v direct investment
• Kinesis benefit comparison
• Kinesis investment options
• Kinesis fees
• Regulation
• Doing business
Introduction to Kinesis• An alternative to direct investment, delivering equivalent
investment performance
• But Kinesis returns are tax free (no CGT and no income tax)
• Clients, and advisers, define the investment strategy
• Kinesis is as low risk as clients want it to be
• Tax treatment occurs because Kinesis is structured as a spread bet
• Returns from spread bets are tax free in the UK
What is Spread Betting?• A method of speculating on the price of an instrument without actually
owning any shares or derivatives
• A financial spread bet allows a trader to bet on whether they believe that the price quoted for a particular financial instrument, such as shares or the FTSE 100 index, is likely to go up in value or go down in value
• Contracts are often leveraged as clients make only a small deposit relative to the size of the bet (e.g. £10k for £100k bet):
Traditional transaction Spread bet
Funds available £100,000 £10,000
Investment 100,000 shares @ £1£1,000 per penny movement in share price
End share price £1.10
Return £10k £10k
Max Loss £100k £100k
History of Spread Betting in UK• 1974 ‘Investors Gold Index’ was created to allow investors to trade on the
price of gold
• IG Index quickly introduced forex and commodities
• 1980s and 90s very niche – low financial sophistication and poor technology
• Around 2000 dot.com boom brought greater public focus on share prices and massive online trading improvements
• Crash allowed spread bet traders to profit by short-selling
• Professional traders recognise spread betting as a high risk alternative investment strategy to yield quick tax-free profits
• Today it is increasingly “retail”
Spread Betting today• Beginners Guides / Free education
• Bets from as lows as 10p per point
• Bets on shares, indices, forex, commodities, property price indices, interest rates, options, sports results
• Margin variable but typically 10%
• No longer just professionals… – adverts in newspapers, billboards, television…
• Well established and accepted taxation treatment
Advantages• Returns are tax free in the UK*
• No direct ownership of underlying assets
• Deposit only required (meaning that capital works harder)
• Streamlined pricing
• Reduced currency risk
• Easy to go “short” as well as “long”
* Note: losses cannot be offset against other capital gains and returns can be taxed as income if client has no income from other sources aside from spread betting activity
Disadvantages• Leverage
• Limited choice of assets
• Specialist reputation
Dismissing the stereotypesSpread betting…
• is not inherently risky
• does allow virtually any type of asset to be held in a spread-bet in any combination
• does not have to be leveraged
• is not just for professionals
• does not have to be complicated
• has a generous tax treatment which is unlikely to change
Why does HMRC allow it?• As many make losses as make gains via spread bets
• HMRC enjoy gaming duty and corporate tax on spread betting firm profits
• Returns are taxed as income if client’s spread-betting activity is sufficient to be deemed a “trade”
Kinesis in Detail• Kinesis is a spread bet account
• Each client can set up their own bespoke Specialist Reference Index (SRI)
• Client and adviser define the assets to be included in the SRI (it can replicate existing client portfolios or investment strategies)
• Assets can be: equities, gilts, corporate bonds, unit trusts, OEICs, hedge funds, loan notes, private equity, structured products…
• Index priced monthly – for every £1 the index increases, clients win £1 and for every £1 the index decreases, clients lose £1
Kinesis in Detail cont’d• Capital require 100% margin from client (i.e. no leverage risk)
• By holding investments via a spread bet, rather than directly, clients create tax free returns
• Clients and their advisers define the risk of assets held
• Contract rolls every three months so clients can access all their money every 3 months – there is no lock-in and no surrender fees
• Tax treatment is also “locked in” every 3 months
Kinesis in Detail cont’d• Capital use the 100% margin to purchase the assets selected in the SRI
via a dedicated subsidiary company (CFM)
• Price of the SRI reflects the value and price movements of the assets in CFM
• So, although CFM own the investment assets, the client receives the performance via the index price to which the spread bet account is linked
• Capital’s liabilities are therefore 100% hedged at all times
• CFM’s assets are completely ring-fenced from all other activity and from Capital’s own assets
Kinesis v Direct InvestmentWhile Kinesis can replicate the investment returns of existing portfolios via the creation of bespoke SRIs, it is via its tax savings that Kinesis outperforms:
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1 Year 2 Years 3 Years 4 Years 5 Years
Kinesis
Direct Portfolio
PPB
Broker OEIC
Kinesis Benefit ComparisonKinesis SIPP Offshore Bond Direct
Max investment
Withdrawals
Capital Gains Tax
Income Tax
Unlimited
3 monthly
0%
0%
£1.8 million
Post 55
0%
Relief on Contributionsbut up to 50% On benefits taken
Unlimited
5% capital withdrawals
0%
Up to 50%
Unlimited
Annual CGTallowance
28%
Up to 50%
Kinesis Investment Options• Clients and their advisers have complete flexibility to nominate assets
for their SRI
• Assets can be: equities, gilts, corporate bonds, unit trusts, OEICs, hedge funds, loan notes, private equity, structured products…
• Discretionary Fund Managers (including Capital) can be appointed to make asset selection
• Capital discretionary managed portfolio service (Fusion) can be included
• Cash only cannot be selected – could be deemed a “one-way” bet
Kinesis Fees• Each 3 month bet (open & roll) has 0.1% Fee
• SRI Set up Fee of 1%
• SRI Annual Management Charge of 0.7%
• Adviser commission added to SRI fees
• SRI performance will also reflect costs of underlying investments (just as if the client were holding the investments directly)
• Therefore Capital’s Kinesis fees are the opportunity cost of the Kinesis tax savings
Key Reminders• Clients own Kinesis (not underlying assets)
• Clients define the investment risk of Kinesis by nominating the assets in their own bespoke SRI
• Clients must pay 100% margin into Kinesis
• Losses are limited to their margin (just as if they invested directly), assuming bet is “long”
• Returns from Kinesis are currently tax free
• Clients assets are available every 3 months
• Clients assets are ring-fenced
Doing Business…Independent Financial Advisers
• All IFAs must complete Terms of Business• IFAs will need to complete an SRI Application Form
SRI Manager or Adviser• We will require a separate form where a third party is to either manage or
advise on an SRI
Client• Clients must sign the Application Form• Clients must sign a Due Diligence Form • Clients must sign the Risk Warning
In-Specie Transfer• Client must sign separate form where existing assets are to be
transferred in specie
Due Diligence
Regulatory Notice
This presentation has been prepared for information purposes only, is intended FSA authorised persons, its duly authorised officers or agents, high net worth individuals and professional investors only. It does not constitute an offer or an invitation, by or on behalf of Capital International Limited, to buy or sell any security. This presentation is not intended for circulation to persons who would constitute a private or inexperienced investor.
The information contained herein is believed to be correct, but its accuracy cannot be guaranteed.
Any reference to past performance is not necessarily a guide to the future. Opinions constitute our judgement as of this date and are subject to change. The company, its clients and officers may have a position in, or engage in transactions in any of the securities mentioned.
The price of a security may go down as well as up and its value may be adversely affected by currency fluctuations.
Capital International Limited is a member of the London Stock Exchange.Capital International Limited and Capital Financial Markets Limited are members of the Capital International Group.Capital International Limited is licensed by the Isle of Man Supervision Commission. Capital Financial Markets Limited is licensed by the Isle of Man Financial Supervision Commission.
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CIL - Kinesis Presentation - V1.01-09.10
Contact Details
Capital International LimitedCapital HouseCircular RoadDouglasIsle of ManIM1 1AG
T : +44 (0) 1624 654200F: +44 (0) 1624 654201E: [email protected]