BOI 100 % Capital Protected bonds

P

pjuegos

Registered User
Messages
34
I recently had a chat with a BOI wealth advisor who proposed a 100% Capital Protected bond. Its main attributes are:
  • It follows the performance of the EURO STOXX 50® Index.
  • It has a duration of 5 years and 11 months.
  • The Return on Investment ranges from 0% to 25%. In other words, your initial investment is secure, and you cannot lose your capital. However, if the return exceeds 25%, it is capped.
  • No management fees
Initially, the product seemed interesting. In an ideal scenario, it would provide an AER of 3.86% with full capital protection. However, upon checking Raisin, I noticed that Banco Português De Gestão offers a guaranteed 3.6% AER for 1, 2, or 3-year deposits.
Assuming the deposit is less than €100k, the investment is similarly protected. The 3.6% AER is nearly as high as the 3.86% BOI product best-case scenario, and it doesn't require a long-term commitment.

Am I overlooking something here?

Thanks
 
Last edited:
I agree with @jpd. Tracker bonds are bad news - do a search for threads about them here. And look elsewhere for a suitable investment opportunity.

"Wealth advisor"? Sigh. Prioritising BOI's wealth no doubt.
 
My dad was offered something similar too. They get the benefit of you investing in the dividend paying Eurostoxx, get your dividends, if it does really well, you don't get all of the money.

You might as well just invest in Eurostoxx yourself, get the dividends and not cap your upside. Or potentially safer (if its short term) just put it in Raisin...
 
NoRegretsCoyote said:
Protected by whom? AFAIK investment protection in event that the issuer is unable to pay out is capped at €20k.

For bank deposits it’s of course €100k.
Click to expand...
By “protection” I’m referring to the safeguarding of the original investment. For instance, if you invest 100k on this product and the EURO STOXX 50 decreases by 20k in value during the term of the investment, you will still receive your initial 100k back

(I think that is also the difference of this product from a bond tracker)
 
Last edited:
Hi pj

This is a "tracker bond". It is a deposit product where the return is in some way linked to the performance of an index.

They look attractive until you analyse them properly. And I have studied some of these bonds and it has taken me ages to find the catch. But there always is a catch.

For example, BCP issued a Quadruple Growth Bond which claimed to offer 4 times the return on the stock market but a guaranteed return of 90% of your money. The punters piled in. It never paid 4 times the growth or anything like it. I complained to the Advertising Standards Authority and the Central Bank but to no avail. Well, I suppose I achieved something in that the CB amended the Consumer Protection Code to say that the name of the product must not mislead the customer from the underlying nature of the product.

So avoid this.
Either invest directly in shares.
Or put €80 on deposit at 3.6% for 6 years and you will get €100 back.
Then punt the €20 on some spread bet.

Brendan
 
Can't find the product online. It seems relatively straightforward though with none of the sneaky Quadruple stuff or Fixed Decrements. Easy to run a very crude slide rule over. Eurostoxx is price only so maybe about a 60% chance of being up over 6 years. The upside is capped at 25% so let's say on average 20%, if there is upside. So value of return is 60% x 20% = 12%* subject to DIRT at 33% =8% after 6 years! I would recommend waiting before getting into any guaranteed long term product - interest rates are on the up.

Brendan Burgess said:
Or put €80 on deposit at 3.6% for 6 years and you will get €100 back.
Click to expand...
Less €6.60 DIRT
In general, disentangling the product is not a good idea. Technically it is a Deposit + Call Option. Disentangled you pay tax on both parts without offset.

*I applied a more sophisticated model and got a value of 8%.
 
Last edited:
ClubMan said:
Do a search here on Askaboutmoney for "tracker bonds" and maybe also "precipice bonds" and you'll going lots of critical coverage.
Click to expand...
Yep, a lot of it by me :) Actually Tracker Bonds like this one are not the worst of them. But some of the structured products that surfaced during the low interest rate phase were downright fraudulent and the chickens have yet to come home to roost as products which were back-tested 1,000s of times with no losses will soon be maturing proving how misleading those back-tests were.
 
I wasn't aware that this type of product was referred to as a 'tracker bond'. When I first read the term 'tracker bond' in this thread, I mistakenly linked it to bond ETFs

Thanks everyone for your contributions to this thread. it is now quite apparent to me that this product doesn't seem to make sense in the context of rising interest rates and the current deposits being offered via Raisin.
 
You must log in or register to reply here.
Back
Top