new Zurich Tracker

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Monksfield

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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.
 
Hi Monksfield

Good analysis. Have you a link to it?

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

Brendan
 
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.
 
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?'.

As with any potential investment if you are selective with your dates for back testing then you can manipulate the information to give you any outcome you wish.

The only fair way to see how this particular investment would have done is to go back to when the Eurostoxx 50 was launched on the 31/12/1986. If you were to simulate a backtest on all final values in every possible 4 year 11 month period since the Eurostoxx 40 launched, there would in fact be in excess of 5,000 simulations.

- Average annual rate of return of 4.7% over this time
- Average final value of 126%
- Highest maturity value of 200%(annual return of 15.1%)
- Backtests show importance of lock in feature where 54%of backtested values used the lock in feature
- Backtests also underline the value of the capital guarantee

As I said above obviously this backtesting is no indication of how this particular investment will do going forward. I don't doubt your good intentions or the conclusions for the period you have highlighted, I have not run the figures based on the dates that you have selected, however I just thought that your conclusions were selective and do not give a proper overview.

As far as I am aware this is a first with a Tracker bond whereby you can access your funds at any stage and get the value at that time. It is guaranteed by two very strong companies in Zurich and Credit Suisse and the client gets 100% participation in the Eurostoxx 50.

It will not be suitable for all but could be a good potential alternative to a deposit account. To conclude that it is 'to be avoided' is in my opinion an unfair conclusion.

Thanks,
Mark.
Click to expand...

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%.

.
Click to expand...
 
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.
 
Monksfield said:
The typical consumer has no idea how damaging the +3/-6 regime is to their chance of a pay-out.
Click to expand...
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).
 
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%
 
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
 
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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