INvestec Emerging Markets Dual Deposit Account

I judge Trackers under three headings:

1) Value for Money

We are told that 3.25% of the investment is taken in charges. In fact if one allows for the interest rate "sweetener" of 8% on 20% of the investment, total charges are about 2.5%. That appears very competitive but these days a vital part of the calculation is the value put on the guarantee. Investec have valued this guarantee by discounting at 3.34%p.a. That is only appropriate if there is no credit risk. We are told that €100K is protected by the UK FSA so anybody considering investing more than this will need to consider the credit worthiness of Investec.

2) The "personality" of the offering

By this I mean things like "averaging", "lock-ins", term, participation, whether there are caps etc. You should not attempt to value the offering on these personality features, they will usually be overhyped in brochures. Value is determined as above. As to whether you are happy with the term, the averaging etc. that is a personal choice. In common with many Trackers these days this one has a "split" personality i.e. 20% of the offering is a short term subsidized deposit whilst 80% is for the longer term and is where the action is. One really peculiar personality feature is that the "BRIC 40 Daily Risk Control 10% Excess Return (EURO) Index." (snappy) is itself a varying participation in the BRIC 40 Index. If the volatilty of the underlying index is 10% then there is 100% participation. But the volatility of this index has been 30% over the last 5 years and if this were to be repeated then on average the Snappy Index would only deliver 1/3rd of the returns on the BRIC 40 Index. Thus you would get 80% of 33% of the growth in the BRIC 40 Index.

3) Potential of the underlying Index

This third heading is actually the most important. What are the prospects for the BRIC stockmarkets? Alhough the most important it is the least measurable at outset. I take the view that no-one has a clue despite the typical investment hype in brochures. But if you buy into the BRIC story, you may like this product though it would probably suit you better to find one without the risk control feature.
 
thanks Duke of M, there's some really interesting comment above and I'll read in depth. You obviously have a good deal of experience in this sort of thing.
 
To sum up Duke's message in a far less eloquent manner, less than 100% participation in a volatility controlled index should be a red flag before you need to read any further into the product.
 
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