Diary of a Private Investor - structured product too good to be true

Colm Fagan

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Too good to be true
Colm Fagan Diary of a Private Investor Update 17 10 September 2019


A conversation with my friend Brian Woods almost four weeks ago started it all.

“Colm, I found an investment you might like. It’s called Accelerator Bond 4. Google it and see what you make of it.”

“OK, Brian, I’ll have a look. While I’m looking, tell me more.”

“It’s a five-year lump sum investment. There are two options; I’ll focus on the second. The return after five years is linked to a stock market index. If the index is at or above its starting level, the investment return is at least 40%. If the index is below its starting level, you lose 15% at most, less if the index has fallen by less than 15%.”

“So, I’m guaranteed at least 85% of my initial investment after five years, come what may, and I’ll get at least 140% if the index is above its current level. Is that what you’re saying?”

“Yes, assuming of course that the bank backing the product hasn’t gone bust.”

“And who are they?”

“BNP Paribas. They’re one of the world’s top investment banks.”

“Sounds great, but why do I get the feeling that you’re not convinced?”

“The fact that it looks so good is precisely the problem, Colm. It’s seems too good to be true, and you know what they say.”

“Indeed. If there is a catch, it must be in the index. The brochure says the bond is linked to an index called the Solactive European Deep Value Select 50 Index. I never heard of it”.

“It’s exclusively for BNP Paribas.”

“Brian, reading the brochure, this Solactive index is very peculiar. The most peculiar aspect is that up to 25 of the 50 stocks selected for inclusion each month are chosen specially because they’re due to go ex-dividend within the month. As you know, the price falls when a share goes ex-dividend, because the seller, not the buyer, is entitled to the dividend.”

“Colm, are you saying that stocks are chosen specially to depress the index?”

“Yes, that’s what I think. I’ll have to do some homework to estimate the extent of the drag. Talk to you tomorrow.”

***********​

“Brian, I’ve done the sums. I estimate that including in the index an above-average number of shares that are due to go ex-dividend cuts the return by around 2.3% a year. On top of that, the dividend yield on the Solactive index is at least 1.2% more than on the EURO STOXX 50, the main benchmark index for Eurozone stocks. So, if the shares in the two indices deliver identical total returns in future, the Solactive Index will lag the EURO STOXX (price only) index by at least 3.5% a year.”

“Are you sure, Colm? That’s a drag of almost 20% over five years. Putting it another way, are you saying that, if the EURO STOXX 50 Index increases by 20% over the next five years, the Solactive Index could still show a loss?”

“Yes, that’s what I’m saying.”

“Hold on now. If you’re right, how do you explain the chart in the brochure showing the Solactive Index outperforming the EURO STOXX 50 over the last 14 years?”

“Brian, it’s apples and oranges. The two indices are completely different, in terms of industry sectors, geographies, and even currencies. There is no logical reason for comparing them. The EURO STOXX 50 consists entirely of Eurozone stocks; the Solactive Index has a mishmash of currencies, including sterling, Swiss Franc and the three Scandinavian currencies. The UK and Switzerland have the highest weightings in the Solactive index. Neither is represented in the EURO STOXX. A cynic might claim that they compared the two indices simply because the comparison gave the “right” result (from their perspective), but I’m not a cynic.”

“Colm, I still find what you’re saying hard to believe, but it ties in with work I’ve been doing, based on the costs and charges on pages 18/19 of the brochure. The margins in the product indicate that there’s about a one in six chance of the investor getting a profit of 40% (or more) at the end of five years. That’s about the same as the chance of landing a six with one throw of a die. There’s a five in six chance that they’ll lose money. Those odds are reasonably consistent with your conclusion that the probability of making a profit is equivalent to the probability of the EURO STOXX Index (price only, excluding dividends) increasing by around 20% in the period.”

“For a mathematician like yourself, Brian, it’s nice to see the two approaches coming to similar conclusions. Not nice for investors, though.”

“Indeed. Our conclusion that there’s a small chance of investors making money also disagrees with the back-testing results on page 11 of the brochure. The Irish promoters (a company called MMPI Limited, trading as Broker Solutions) say that they back tested 1,304 5-year periods between 2 July 2009 and 1 July 2019 and that every single one of those 1,304 back-tests showed a profit. The worst return was +40% while the best was +81.27%.”

“That sounds very impressive, Brian. How did they get 1,304 simulated past returns?”

“Good question! They assumed that someone could have invested in a five-year product each working day between 2 July 2009 and 1 July 2014 and seen it mature. But there were only two independent five-year periods in that time – the first between July 2009 and July 2014 and the second between July 2014 to July 2019 - not 1,304.”

“Crazy. I’m surprised they didn’t aim even higher. They could have got more than 15,000 successful past simulations by assuming people invested every half-hour rather than just once a day. They undersold themselves!”

“That’s funny, Colm, but it’s no joke for the people who bought the product. We should do something”

“Like write about it in my investment diary and hope someone in authority will read it?”

www.colmfagan.ie
 
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Surprised but not surprised if you know what I mean! Any investment product sold by banks and life companies tend to be terrible value but that definitely take the biscuit. Great explanation on the nitty gritty details, which the Joe Soap would be very unlikely to understand.

I think KBC offered something like this before as well, really complex product based on index being above or below a value. Hmm, looked for this but can't find it now, perhaps it was another institution. However they have funds with 1 percent transaction fee plus 1.68 percent annual charge! Again if only it were not a tax nightmare to just buy the index yourself....

As I mentioned on other thread, whilst enjoyable and informative read, this merely reinforces the mistrust of people with financial institutions, and IMO investing is an area where people really feel they are exposed to this. I had began buying ETFs but stopped to overpay mortgage after reading on here. Easier, effectively risk free and a guaranteed return of about 2.6 percent tax free.

Would wonder what percentage of people invest outside of pension wrapper in Ireland. It must be miniscule?
 
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Hi Colm,

I echo the comments of all those that welcome your continued posting!

But............................................................I don't know what a tracker (bond) is!

Well, what I mean is, I just have a very hazy understanding of the mechanics of how these products ought to work. In particular, if the chosen index was completely bona fide, what are the drivers of pricing? From what I've seen, these products typically tend to have a floor value (gtd % of original investment) coupled with some upside potential and what I'm trying to figure out is how does one establish which tracker bonds are reasonably priced and which ones are taking the biscuit! Can light be shed on the maths here?

Moving from the general to the specifics of your article, I had a quick look at the brochure. In it, it is claimed that various filters are used to determine the stocks that make up the index. From previous posts, you will know that ethical considerations are a primary "filter" of mine. And so to my observation/question. It seems that Friends First is happy to be associated with/distribute this product. Since, I have no reason to question your analysis and that you were able to rip this product apart in jig time, how can the deficits in this product not be as readily apparent to the actuaries/management in Friends First? Consequently, is it ethical for Friends First to be associated with such a product?

Note 1: I highlight Friends First because of its scale and because FF really should have proper governance in place.

Note 2: There is quite a bit of overlap between my "ethical questioning" above and what username123 is saying - real trust in financial institutions, etc.

Note 3: My circumspection regarding financial institutions is because I have been duped.....and more than once. Fool me once, shame on you and all that!
 
... what I'm trying to figure out is how does one establish which tracker bonds are reasonably priced and which ones are taking the biscuit! Can light be shed on the maths here?

A good starting point is... assume they are taking the biscuit. They almost all are
 
I think that this kind of analysis is critical, too often people conflate hearing that "the stock market has always gone up over the longterm" with any investment in the stock market will go up over the longterm.

Thanks to this forum and the contributors here, I know that not all investments, and therefore investment products, are created equal. There are a lot of people out that don't get this and the stock market is this big nebulous concept.

I am still early on my journey to educate myself, but have already decided that my mortgage and pension come first and only when I get to the stage of having "fun" money that I can afford to completely lose will I start looking as the stock market outside of my pension.
 
I would love to know much money has gone into this and which financial advisors showed it to clients.... There are so many alarm bells in that brochure...

I love this from BNP in the brochure...

Disclaimer: This document has not been reviewed, approved or otherwise endorsed by BNP Paribas or any of its
affiliates and BNP Paribas accepts no responsibility in relation to the accuracy, completeness or adequacy of the
information included herein. Nothing in this document should be considered to be a representation or warranty
by BNP Paribas to any person, including without limitation, any potential investor and any member of the public,
regarding whether investing in the Bond described herein is suitable or advisable for such person.
 
Hi Colm,

I echo the comments of all those that welcome your continued posting!

But............................................................I don't know what a tracker (bond) is!

Well, what I mean is, I just have a very hazy understanding of the mechanics of how these products ought to work. In particular, if the chosen index was completely bona fide, what are the drivers of pricing? From what I've seen, these products typically tend to have a floor value (gtd % of original investment) coupled with some upside potential and what I'm trying to figure out is how does one establish which tracker bonds are reasonably priced and which ones are taking the biscuit! Can light be shed on the maths here?

Moving from the general to the specifics of your article, I had a quick look at the brochure. In it, it is claimed that various filters are used to determine the stocks that make up the index. From previous posts, you will know that ethical considerations are a primary "filter" of mine. And so to my observation/question. It seems that Friends First is happy to be associated with/distribute this product. Since, I have no reason to question your analysis and that you were able to rip this product apart in jig time, how can the deficits in this product not be as readily apparent to the actuaries/management in Friends First? Consequently, is it ethical for Friends First to be associated with such a product?

Note 1: I highlight Friends First because of its scale and because FF really should have proper governance in place.

Note 2: There is quite a bit of overlap between my "ethical questioning" above and what username123 is saying - real trust in financial institutions, etc.

Note 3: My circumspection regarding financial institutions is because I have been duped.....and more than once. Fool me once, shame on you and all that!
Whitecoat, good surgical questions. Can you give me a link to the Friends First product?
They are all a bit different but the basic autopsy goes as follows using Option B of this particular beaut.
You are guaranteed 85% back in 5 years. At today's interest rates that will use up at least 83% of your investment. We are told that expenses will consume 7% of your investment. That leaves 10% to play at the derivative tables. The bet that has been chosen is that their own makie up index will be ahead of its opening level in 5 years time. The casino is giving 55%+ for this 10% bet - as good as the odds on throwing a six with a die. So far the autopsy has proceeded well but how can we tell if these are good odds? This was an index made up in July 2015 and started life with a silver spoon in its mouth. A backtest at that point shows that it had beaten Eurostoxx 50 by 5.44% p.a. or 144% since February 2001. As Colm has shown this poor index in the normal course is carrying a handicap which will burden it by 3.5% p.a. against its benchmark from its birth. And indeed it has underperformed by something similar since that time. If this was a human delivery the parents would be suing by now!
Anyway, having started life with such an enormous historic advantage it can withstand its inbuilt handicap for some time. So much so that when the product was backtested in July this year simulating 1304 daily incarnations since mid 2009, this die came up a 6 on all 1304 occasions (for the nerds in this parish the odds of that are greater than the number of atoms in the universe).
The quants know that in future they would expect over 1,000 of such 1,304 incarnations to fail and lose the punter money. There is no great surprise that it backtests so well. 2009 was the bottom of the crash and the beginning of a prolonged bull run, and in any case when it entered this world the parents had already ensured it had a superb 5 years behind it.
Mind you if they had gone back to February 2001 in this backtest (they do elsewhere in the brochure) they would have found that it would have failed 480 times. Still not as bad as the throw of a die but nonetheless enough to put off most punters.
 
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I would love to know much money has gone into this and which financial advisors showed it to clients.... There are so many alarm bells in that brochure...

I love this from BNP in the brochure...

Disclaimer: This document has not been reviewed, approved or otherwise endorsed by BNP Paribas or any of its
affiliates and BNP Paribas accepts no responsibility in relation to the accuracy, completeness or adequacy of the
information included herein. Nothing in this document should be considered to be a representation or warranty
by BNP Paribas to any person, including without limitation, any potential investor and any member of the public,
regarding whether investing in the Bond described herein is suitable or advisable for such person.
Really quite unbelievable!!
 
Well, what I mean is, I just have a very hazy understanding of the mechanics of how these products ought to work. In particular, if the chosen index was completely bona fide, what are the drivers of pricing?
Hi @WhiteCoat I hope that the Duke has answered your question on the mechanics of such products and the drivers of pricing. I can't add anything. By the way, these products are called Trackers in Ireland but in the UK they're called structured products, which is a better name. There, trackers are investment products that track an index, such as the FTSE 100 etc., without any guarantees.
As to whether such products offer value, I wrote a short introduction when posting the diary update on www.colmfagan.ie and on LinkedIn. The introduction didn't copy onto the AAM posting. It will help answer your question:
If something looks too good to be true, it usually is. That’s the message from this month’s diary update. It tells of a weird product, concocted to satisfy savers’ hunger for security and return. That’s an impossible combination in today’s low-interest environment.

I've been constantly trying to hammer home the impossibility of security and return in my diary entries. It's necessary to take a risk to get a reward. There are no short-cuts. If you invest in good quality companies and have a sufficiently long time horizon, however, risk-taking pays off handsomely.

At my age, I still think there's time for the risks to bring their reward. Speaking of which, I was in Blackrock Clinic for some routine checks this morning when I read your post. It made me wonder if I'll find myself close to death at some future date, for a kindly face to lean over my bed and whisper in my ear "I'm WhiteCoat"! I'll immediately confess my sins of having smoked almost non-stop for twenty-five years before finally giving them up!
 
Thanks so much. I feel saved somewhat by your posts. It seems extraordinary that it could be legal to use information that is irrelevant to the investment model in the brochures?
 
"The world's best investor?" is the title of my latest diary update (update 18). It's the second part of a conversation with Brian Woods. The first part of the conversation is at the start of this thread.

“Colm, I took a closer look at the ‘Solactive European Deep Value Select 50 Index’ we discussed last week.”

“I remember it, Brian. That’s the one promoted by BNP Paribas.”

“Yes, that’s the one.”

“As I recall, BNP Paribas promised that, if the index (I’m calling it the Solactive Index, though they have other indices) is at or above its starting level at the end of five years, the bank will give punters at least 140% of their initial investment; otherwise they lose money, possibly up to 15%.”

“That’s it, Colm. When I looked at it first, I thought it was a fantastic offer, but you took the wind out of my sails by pointing out that, if the underlying performance of the two indices is identical, the Solactive Index will lag the EURO STOXX 50 by around 3.5% a year.”

“Yes, but in the past performance stakes the Solactive Index beat the EURO STOXX 50 hands down over the last donkeys’ years, despite this enormous handicap.”

“That’s what’s puzzling me, Colm. Its past performance against the EURO STOXX 50 was unbelievably good – and I mean that. Looking at a BNP Paribas sales presentation from 2017, the Solactive Index produced an average return of 3.49% a year in the sixteen-and-a-bit years from February 2001 to July 2017; the EURO STOXX 50 (price only, excluding dividends) fell by an average 1.87% a year over the same period. That’s an average outperformance of 5.36% a year for the Solactive Index. Incredible!”

“I see what you’re getting at, Brian. If they both started at 100 in February 2001, the Solactive Index would be worth 176 in July 2017 while the EURO STOXX 50 would have fallen to 73. You’d be worth more than twice as much if you’d put your money in the Solactive Index rather than the EURO STOXX 50, and that’s before dividends. The dividend yield on the Solactive Index would also have been much higher than on the EURO STOXX 50, making you richer again.”

“If our years of studying the actuarial exams when we were young did anything for us, Colm, it is that we’re able to do compound interest calculations! Your arithmetic is right, but do you really think BNP Paribas has found a magic formula for identifying shares that can deliver outsized returns over so many years?”

“Brian, BNP Paribas is one of the biggest and most prestigious banks in Europe. I’ve just read their 2018 Annual Report. In it, they say that they want to be among the most trustworthy players in the industry. You can’t be claiming that they’ve ..?“

“Stop! Don’t say another word!”

“OK, Brian, but let me put it another way. Suppose you discovered a winning formula for the stock market, what would you do?”

“I wouldn’t tell a soul. I’d put everything I had, more if I could borrow it, on the shares that I’d identified as likely winners. BNP Paribas is a bank, so it can borrow lots.”

“Exactly, but that’s not what happened, is it? Instead, ordinary punters were encouraged to put their savings into a product linked to this wonderful index, with BNP Paribas promising to give them a 40% bonus, plus their money back, if the index is up after five years.”

“Strange, isn’t it?”

“Strange indeed. Here’s a thought, Brian. Most of this fantastic past performance is theoretical. BNP Paribas quote figures going back to 2001, but the index only came into existence in 2015. It’s all theoretical before then. The proof of the pudding is in the eating. It would be interesting to know how the index has actually performed since its launch.”

“I’m ahead of you on that, Colm! I’ve already done the sums, some of them anyway. The figures I quoted earlier, which showed the Solactive Index beating the pants off the EURO STOXX between 2001 and 2017, were taken from a BNP sales presentation of July 2017. BNP Paribas have updated the presentation to include figures for both indices to June 2019.”

“And …?”

“The new presentation included figures for the eighteen years from 2001 to 2019. Once again, BNP Paribas showed the Solactive Index beating the pants off the EURO STOXX 50, but not by as much as in the 2017 presentation. By comparing the two presentations, I was able to deduce the performance of the two indices between 2017 and 2019. Guess what?”

“From the way you’re leading me on, Brian, I guess that the outperformance relative to the EURO STOXX 50 was less than in the previous sixteen years?”

“It’s worse than that, Colm, much worse. In the two years (actually, one year, eleven months) between July 2017 and June 2019, the average return on the EURO STOXX 50 was a positive 0.36% a year while the average for the Solactive Index was a negative 2.74% a year. The Solactive Index underperformed the EURO STOXX 50 by 3.1% a year. You estimated that it would underperform by around 3.5% a year, so you were almost spot on. I salute your powers of deduction, Holmes.”

“Elementary, my dear Watson, elementary. But one thing I still can’t get my head around is that BNP Paribas, a bank that wants to be among the most trustworthy players in its industry, which surely knows more than we do about the expected underperformance of the Solactive Index –“

“ and which must also know of its actual underperformance over the last two years.”

“ - still advertises its supposed long-term outperformance in its sales literature. In the circumstances, I’ve decided there’s only one thing for it, Watson. Get your hat; we’re going to have a word with Inspector Lestrade of the Yard.”

******​

Other diary entries can be found at http://www.colmfagan.ie/investments.php
 
“I see what you’re getting at, Brian. If they both started at 100 in February 2001, the Solactive Index would be worth 176 in July 2017 while the EURO STOXX 50 would have fallen to 73.

So a 100 euros invested in the euro stoxx 50 in 2001 (excluding dividends I know) would only have been worth 73 euros in 2017. You would think that investing in the 50 biggest companies in europe would have been a fairly safe bet, yet the performance has been dismal. Im surprised better minds than mine have not focussed in on this issue, the dismal performance of the european stock markets over the last 2 decades. Even the german economy exporting all those cars and equipment was not reflected in the european stock market.
 
In relation to internet forums, I suspect that there must be some etiquette protocol in terms of timescales for acknowledging responses to questions posed which I have breached badly......sorry Duke and Colm and thanks for your responses.

Attached is the brochure that I found in relation to the product in question. It feels like the same product but the page numbers don't match with the initial post.

In any event,

1. In the attached brochure, under section 8, Friends First and Cantor Fitzgerald are expressly listed as distribution partners. Hence, my original question about the ethics of their effective endorsement of the product.

2. Regarding the maths element in all of this, I appreciate very much the Duke's explanations but would like to understand a little more please:

(i) How can such a product be back-tested when choices are made continuously regarding which stocks to include as described in the filtering process?

(ii) Is there an available derivative to cover the "bet" element here and how can the derivative provider ensure that it is not exposed? (I'm taking the follow the money approach here.) I'm at a loss to understand how such a derivative could be created given the discretionary nature of this so-called index.

(iii) Can you explain why the drag on performance is estimated at 3.5% please? [I would have thought that if dividends were paid twice yearly and the stocks in the index had a dividend yield of 3.5% and that in any given month, half the stocks were ex-dividend, one would end up with a crude monthly drag of 3.5%/2/2, i.e. just shy of 0.9% and that this drag would broadly apply for each of the 12 months. Just like to understand where my thinking is flawed!]
 

Attachments

  • SA4-Broker-Training-Guide.pdf
    1.3 MB · Views: 391
In relation to internet forums, I suspect that there must be some etiquette protocol in terms of timescales for acknowledging responses to questions posed which I have breached badly......sorry Duke and Colm and thanks for your responses.

Attached is the brochure that I found in relation to the product in question. It feels like the same product but the page numbers don't match with the initial post.

In any event,

1. In the attached brochure, under section 8, Friends First and Cantor Fitzgerald are expressly listed as distribution partners. Hence, my original question about the ethics of their effective endorsement of the product.

2. Regarding the maths element in all of this, I appreciate very much the Duke's explanations but would like to understand a little more please:

(i) How can such a product be back-tested when choices are made continuously regarding which stocks to include as described in the filtering process?

(ii) Is there an available derivative to cover the "bet" element here and how can the derivative provider ensure that it is not exposed? (I'm taking the follow the money approach here.) I'm at a loss to understand how such a derivative could be created given the discretionary nature of this so-called index.

(iii) Can you explain why the drag on performance is estimated at 3.5% please? [I would have thought that if dividends were paid twice yearly and the stocks in the index had a dividend yield of 3.5% and that in any given month, half the stocks were ex-dividend, one would end up with a crude monthly drag of 3.5%/2/2, i.e. just shy of 0.9% and that this drag would broadly apply for each of the 12 months. Just like to understand where my thinking is flawed!]
Thanks Whitecoat. Ok, so the Friends First reference is in their role as pension providers. I was hoping that they had designed a life product around it as these tend to be more regulated.
Your questions are spot on.
(i) When launched in 2015 it was known to backtest with an +5.4% p.a. against its benchmark since 2001 and that is despite the c. 3.5% dividend handicap i.e. an overall staggering outperformance of c. +9% p.a. if we were to include dividends. It is difficult to tell whether the strategy/algorithm which is expressed as the use of filters is 100% objective or whether it contains an element subjectivity. If there is an element of subjectivity then I agree, how could such judgement be backfitted? But the backtesting is said to have been performed by Bloomberg so I take it that the algorithm is entirely formulaic.
(ii) Your second question shows a surgical understanding of the anatomy of these products. On Page 28 of the attached presentation you will see a dissertation on option prices. And yet given the proprietary and very idiosyncratic nature of the index there is very unlikely to be an active market in options on it. Rather, Paribas themselves are underwriting the option. It is unlikely that they are taking a "naked" position on it but instead will be using hedging techniques to secure their profit.
(iii) I'll leave Colm to address this one.
 

Attachments

  • Solactive-Index-Presentation-July-17.pdf
    1.2 MB · Views: 553
Would love to say this is a one off but check out the Kick Out Memory Bond...…

[broken link removed]
 
(iii) Can you explain why the drag on performance is estimated at 3.5% please? [I would have thought that if dividends were paid twice yearly and the stocks in the index had a dividend yield of 3.5% and that in any given month, half the stocks were ex-dividend, one would end up with a crude monthly drag of 3.5%/2/2, i.e. just shy of 0.9% and that this drag would broadly apply for each of the 12 months. Just like to understand where my thinking is flawed!]
Brian and I went through a similar discussion. I didn't document how we (sorry - I!) finally arrived at 3.5%, but I think the logic was as follows:
BNP state in one of their sales presentations that, even though up to half the stocks in the selection can be within a month of going ex-dividend, only a quarter (on average) fall into that category. This compares with one-sixth on average for a "normal" index (assuming dividends twice a year). Thus, 50% more stocks are in this category in the Solactive Index. The drag on the index is thus 50% of the dividend yield. I estimated a dividend yield of 4.7% for the Solactive Index (from calculating the yields for a random sample of stocks in the index), so the drag under this heading is 2.35%. In addition, the dividend yield on the Solactive Index is at least 1.2% higher than on the EURO STOXX 50. That adds to 3.55% in total, rounded down to 3.5%. As I write this, though, I think we could have done better. Companies don't declare dividends randomly during the year. They're strongly bunched into March/April and September/October. I haven't worked out how that affects the calculation.
Going back to how you derived your estimate, I think you assumed (as I did initially) that 50% of the stocks in the selection (i.e. the max allowable) are within a month of going xd, not 25%. Also, don't you have to multiply by 6, since it's a monthly drag for the six months?
 
(iii) Can you explain why the drag on performance is estimated at 3.5% please? [I would have thought that if dividends were paid twice yearly and the stocks in the index had a dividend yield of 3.5% and that in any given month, half the stocks were ex-dividend, one would end up with a crude monthly drag of 3.5%/2/2, i.e. just shy of 0.9% and that this drag would broadly apply for each of the 12 months. Just like to understand where my thinking is flawed!]
Just checking this and Colm's response. You calculate a drag of 7.2% p.a. but the Eurostoxx itself would have a dividend drag of 3.5% so you are calculating a drag against the benchmark of 3.7% which isn't a million miles away from Colm. Though there are two compensating inconsistencies as Colm has explained. First of all we are told that they do not take up their full allocation of 50% but on average it is 25%. On the other hand the process appears to filter out high dividend yield stocks. It is not clear why that should be the case as the filters themselves do not seem to directly target high yield stocks.
 
Would love to say this is a one off but check out the Kick Out Memory Bond...…

[broken link removed]


Once off? There are companies out there that do nothing but construct these products. There's loads of them out there. Problem now is with interest rates so low, they have become a lot more complex, making them impossible to understand. Given their target market are people who usually leave their money on deposit, most of the people who take them out won't have the actuarial qualifications of Colm and Duke that is required to know what is actually going on. All they know is they want something better than 0.1% they are getting on deposit, they don't want too much risk and they are sold something that promises the returns of equities with the securities of deposits. 5 years later, they get 85% of their money back!!


Steven
www.bluewaterfp.ie
 
And who sells these products to the public Steven ?

I am sure you don't, but many financial advisors do. And it is difficult for members of the public to know what type of FA they are dealing with. One that sells perfectly legal products which are designed to profit their promoters, or one who would not do such a thing.
 
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