# new Zurich Tracker



## Monksfield (15 May 2011)

I came across this the other day - this has a very solid bank as counterparty(Credit Suisse) and 100% participation....so far so good.

However the trick with this one is that the investor's participation in the up months is capped at 3% while that in down months can be as much as 6%.

I ran the numbers on the index going back to 2000 and this structure would disimprove the return from -24% to -44%.

This is classic tracker stuff.To be avoided.


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## Brendan Burgess (16 May 2011)

Hi Monksfield

Good analysis. Have you a link to it? 

This trick, and it is a trick, should be in the Key Features

Brendan


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## Monksfield (16 May 2011)

I had another look at the data - of 59 rolling 5 year periods in the data I could access  the Zurich formula reduced the outcome in 49. In the 10 where the outcome was better there would have been no payout in most as the index was negative.

In the period to August 2007 the 'Zurich' outcome was 73% below the index.


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## Sunny (3 Jun 2011)

Mark Ryan said:


> Hi Monksfield
> 
> I think that you are being very selective with the information that you are using to come to your conclusions. I think that you are being unfair in your conclusions. Although backtesting is not allowed in customer documentation by the Central Bank, as previous returns are no indication as to how it will perform into the future, it is something that invariably comes up when looking at a potential investment. The question would ofter arise 'how would this have done in the past?'.
> 
> ...


 
All well and good but I am willing bet that the feature below is not explained clearly in all the marketing brochures. I don't know the product but I have worked on structuring trackers and I have to agree with people that say most of these products should not be allowed to see the light of day on the retail side of banking. 



Monksfield said:


> However the trick with this one is that the investor's participation in the up months is capped at 3% while that in down months can be as much as 6%.
> 
> .


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## Monksfield (3 Jun 2011)

I was not selective at all - I used all the data to which I had access.11 years of data is more than enough to produce a valid conclusion.

The typical consumer has no idea how damaging the +3/-6 regime is to their chance of a pay-out.

Not Zurich's fault that there is no value in this product.Like Sunny I worked on these products in a previous life and I understand how horrible the pricing environment is for those putting them together now.


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## PMU (2 Jul 2011)

Monksfield said:


> The typical consumer has no idea how damaging the +3/-6 regime is to their chance of a pay-out.


Can  you actually make money with this product?  If your upside is capped at  +3% and your downside is capped at -6%, you can in any period have one  of ten  possible outcomes, i.e. +3%, +2%, +1%, 0, -1%, etc. to -6%).  So,  assuming an equal probability of each outcome, your expected return in  any period is ((1.03+1.02+1.01+0+0.99+0.98+0.97+0.96+0.95+0.94)/10) =  0.885, i.e. less than 1, so you have an expected negative outcome each month, unless you leave it until the bond matures when you get back  your original investment (less the Government 1% levy).


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## SPC100 (21 Jul 2011)

each outcome does not have an equal proabability.  I agree, i would not be investing. i prefer deposit interest to this risky max of 3%


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## Brendan Burgess (21 Jul 2011)

Is there not a requirement in the Consumer Protection Code to have a name which reflects the actual product? 

This should be called the "one step forward, two steps back tracker"

or maybe even better, "the backtracker" 

Brendan


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## DerKaiser (21 Jul 2011)

These products are very convoluted and almost certainly bad value for money.

The only difference with Zurich's product to others on the market is that this fact is more clear as you have eliminated most of the credit risk involved i.e. don't fool yourself into thinking there's good value in one backed by a lower rated bank by ignoring the credit risk involved - though clearly many people have as there is a large market for these in 2011


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