10 year tracker - Merrion

M

Monksfield

Registered User
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There has been much discussion of tracker products on AAM.

The arrival of a 10 year tracker from Merrion marks a completely new departure (it is linked to the Eurostoxx 50 with the capital protection provided by Societe Generale).

Is it time the regulator stepped in? These products are questionable when the term is 3-5 years but they are simply not suitable for long term investment.
 
Merrion Note

There is the liquidity aspect to consider, which does offset the downside of the ten year term to some extent. However this is difficult to assess given that Soc Gen will be the only market maker. But you are right, from the point of view of a guarantee representing an insurance policy, a product offering a capital guarantee on the 10th anniversary would seem to be an inefficient use of capital.

Given the improvement in bank funding and consequent decline in deposit rates, it's not surprising to see products adjust to keep the appearance of offering an attractive alternative to cash. There is a product out there currently with 4% option spend - the lowest I have even seen for a product of its type. If volatility rises from here it will all but kill off the traditional deposit plus call option tracker.

A point of potential interest with structured notes/corporate bonds like this one is how they will be treated post introduction of AIFMD in July. Apparently this directive will capture all non-UCITs structures. If they fall under the auspices of this directive (like private equity, property, hedge funds) then minimum investment will be €125k as far as I am aware. Anyone know if this is relevant or not?
 
I agree, awful products, full of hidden costs. Instead of a guarantee, why not place half the money on deposit and half in a global equity ETF? Markets down 20% on a 10-year view and you are probably still back to breakeven when interest and dividends added back.

The crux of the issue is that returns from global equity markets are probably likely to be in the order of 5-6% per annum over the next 10 years. A guaranteed product will take a lump out of those returns and for a guarantee that you can provide for yourself by splitting your assets between risk and non-risk as suggested earlier in this response.

Rory Gillen
Founder
GillenMarkets.com
 
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