Sequoia Commodities Series 18
Open To Retail Investors

Sequoia Commodities Series 18

Sequoia Commodities Series 18
Sequoia Commodities Series 18
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Last Updated 14.09.2023

Sequoia has just launched a new investment enabling investors to a diversified commodities index with minimal upfront capital and limited downside risk.

Sequoia Commodities Series 18
Min. Investment
$9,950
Objective
Growth
Structure
Other
Asset Class
Commodities
Liquidity
Unlisted liquid
Closing Date
8 September 2023
View More Details
Min. Investment
$9,950
Objective
Growth
Structure
Other
Asset Class
Commodities
Liquidity
Unlisted liquid
Closing Date
8 September 2023
Industry
Other
Funding Stage
Other
Security Type
Other
Target Capital
N/​A
Availability
Open for investment

Investment Term
1.5 Years
Prepaid interest and fees
9.95% Total (interest 5.9% p.a. & 1.1% appl fee)
Underlying Asset/Index
BNP Paribas Strategy C52 10% Index
Borrowings
100% limited recourse loan
Margin Calls
None
Credit Checks
None

The Minimum Amount payable is $9,950 for $100,000 of investment exposure.

Sequoia Commodities Series 18 is a structured investment whereby:

  • Sequoia Specialist Investments Pty Ltd (SSI) lends 100% of the Investment Amount to the investor on a limited recourse basis;
  • the investor prepays the interest and fees upfront covering the full 1.5-year investment term (9.95% in total);
  • the investor obtains 100% leveraged exposure to any positive performance of a diversified commodities index (“BNP Paribas Strategy C52 10% Index”) over a 1.5-year period; and
  • there is the potential to receive an uncapped Performance Coupon at Maturity dependent on the Index Performance applied to the full leveraged Investment Amount, adjusted for changes in the AUD/USD exchange rate during the Investment Term (“Series Performance”); and
  • the maximum risk of loss is the investor’s initial cash outlay (i.e. 9.95%). They can never lose more than this in any scenario;
  • the Series Performance at Maturity needs to be >9.95% in order for investors to generate a profit.

 

Terms

  • 1.5 Years
  • 100% Limited Recourse Loan 
  • 5.9% p.a. interest rate (payable upfront for the full investment term)
  • 1.1% Application Fee 
  • 9.95% Total Investment Cost [(5.9% x 1.5yr) + 1.1%]
  • BNP Paribas Strategy C52 10% Index (Bloomberg Ticker: BNPIC52V Index)
  • Uncapped Performance Coupon at Maturity 
  • SMSF Eligible
  • Daily liquidity exits so that investors can unwind their investment anytime before maturity;
  • No margin calls;
  • No credit checks; and
  • Interest is tax deductible (amortised over the term of the loan).

 Key risks include:

  • Risk of 100% loss in relation to the Total Investment Cost and Upfront Adviser Fee. The Total Investment Cost equals the Prepaid Interest in relation to the Loan and the Application Fee. Investors may also incur an Upfront Adviser Fee in addition. A 100% loss will occur if there is no Performance Coupon paid at Maturity. This will be the case if the Index Performance is negative at Maturity and in such circumstances, no Performance Coupon is paid;
  • Risk of partial loss (i.e. less than 100% loss) in relation to the Total Investment Cost and Upfront Adviser Fee. The Total Investment Cost equals the Prepaid Interest in relation to the Loan and the Application Fee. Investors may also incur an Upfront Adviser Fee in addition. Investors may incur a partial loss if the Performance Coupon at Maturity is positive but less than the Break-Even Point; 

Sequoia Commodities Series 18 tracks BNP Paribas Strategy C52 10% Index (Bloomberg Ticker: BNPIC52V Index), a diversified long-only commodities index sponsored by BNP Paribas across 3 sectors and cash:

  • Energy;
  • Industrial metals; and
  • Precious metals

Including exposure across 13 individual commodities and cash:

  • Copper;
  • Zinc;
  • Aluminium;
  • Nickel;
  • Lead;
  • Gold;
  • Silver;
  • WTI Crude Oil;
  • Brent Crude Oil;
  • Gasoline;
  • Low Sulphur Gas Oil;
  • ULS Diesel;
  • Natural Gas; and
  • Cash.

The Index provides the above exposures via futures contracts linked to the relevant underlying commodities, rather than any form of direct exposure to the relevant underlying commodity. Please see below for more information on the commodity futures.

 

The individual commodity weights within the Index are based on:

  • liquidity and global production data in line with industry benchmarks;
  • 20% maximum cap applied on a daily basis to the level of any individual commodity exposure within the Index (before  application of the 10% target volatility mechanism);
  • 35% maximum cap applied to the Energy Sector on a daily basis (before application of the 10% target volatility mechanism);

We also believe the recent pullback in commodity prices since the highs reached during Q2 2022 appears to be presenting an excellent opportunity for investors who are bullish on this asset class for the next 18 months.

 

Past performance is no indication of future performance

We note Goldman Sachs has recently come out with their latest research paper (attached) forecasting a strong rally in commodities (especially Energy and Industrial metals) in the next 12 months (see below).

 

The broader commodities asset class (including energy, industrial metals and precious metals) entered a bull market in 2021 after rallying significantly from the lows reached during March 2020. Whilst the commodities market has pulled back since reaching initial highs in Q2 2022, it remains technically within a long-term bull market. The correction in commodity prices over the last year also appears to be stabilising and presenting an interesting entry point opportunity for investors who would like to add a direct commodity allocation to their portfolio.

 

There are also several fundament reasons that could contribute to a continued rally including:

  • Structural shortages remain present across many core commodities markets (e.g. deficits are expected in Q3/Q4 2023 in oil, especially according to Goldman Sachs);
  • Demand has picked up across various industrial metals such as copper due to China reopening;
  • Higher prices are expected in Natural Gas after they have pulled back 80% and Europe heads into the 2023/2024 winter;
  • Gold appears to be on the verge of breaking out to a new trading level with a “reaction low” expected in June 2023 from a cyclical perspective;
  • Divestment away from fossil fuels such as oil and natural gas due to climate change policies has exacerbated supply issues across the energy sector;
  • Rising tensions geopolitically including the risk of a possible major escalation of the war in Ukraine;
  • Research analysts such as Goldman Sachs expect a strong rally in commodity prices during 2023 – refer to fund manager research in the Appendix.

It is important for investors to understand that in order to recoup the Total Investment Cost and generate a profit on this investment then the Index Performance adjusted for changes in the AUD/USD exchange rate during the Investment Term (“Series Performance”) needs to be greater than the Break-Even Point of 9.95% (excluding any Upfront Adviser Fee and any external costs, such as tax).


As such, the Series Performance will need to be strong over the next 1.5 years in order for you to at least break even and generate a profit.

 

Hypothetical Examples

In the example below we look at 3 potential hypothetical scenarios. Please note that these are theoretical scenarios only and provided for illustrative purposes only and are not intended to be a forecast, do not indicate past performance, and are not a guarantee that similar returns will be achieved in the future. The actual final result for this investment at Maturity is likely to be different to any of the hypothetical scenarios below and will depend on the actual Series Performance realised at Maturity. Returns are not guaranteed.

 

Click here to view the latest performance figures

Sequoia Specialist Investments Pty Ltd (“SSI”) is a wholly owned subsidiary of Sequoia Financial Group (ASX code:SEQ) and is one of Australia’s leading, non-bank issuers of structured investments for Australian retail and wholesale investors. It has issued over 80 investments since 2010 covering a broad range of asset classes with a cumulative total notional of over $400m being issued during this time.

 

Our aim at SSI is to build innovative investment solutions not otherwise available to Australian investors via traditional investment platforms by working closely with top tier global investment banks to develop unique investment thematics that are able to capitalise upon emerging global trends.

 

These investments are offered in the form of either leveraged structured investments or fully funded structured investments depending on the objective of the investment (i.e. capital growth vs income).

 

SSI can also offer a variety of solutions for professional advisers or AFSLs where we can provide white label solutions for groups that want to retain their own branding.

 

Blair Kirkhope - Investment Manager (Head of Specialist Investments)

 

 

Jordan Momircevski - Specialist Investment Associate

 

30 June 2023
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30 June 2023
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5 July 2023
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