The legendary fund manager Peter lynch said
"Never invest in anything you can't illustrate with a crayon"
Wise words indeed and sufficient to protect investors from products like this. Generally speaking products like this are far too complicated for the average retail investor to understand.
In this particular stuctured product you are taking the potential for investment returns from an index which in my view may appeal to investors looking for exposure to emerging markets.
The use of the words BRIC 40 in the title clearly suggests Brazil Russia India and China (BRIC) and in my experience this is sufficient for many investors to make a purchase.
However, this index is NOT tracking Emerging Market Equity returns but rather a "managed exposure" to volatility. This exposure is managed through the use of amongst other things, leverage or borrowings.
"Risk control indices employ a systematic risk management approach that maintain volatility within a predefined range by dynamically varying exposure to an underlying index.
Consists of a position in an underlying index and a cash position.
The index increases exposure to the underlying index during times of low market volatility while reducing exposure during times of higher market volatility."
The investment return will therefore have completely different risk and return characteristics than that of an emerging market equity index. This is not to say it is necessarily a bad product per se, I haven't reviewed the prospectus in detail, but ask yourself this question;
Do you need exposure to an index tracking an element of emerging market volatility in your portfolio? Then why would you buy this product?
I am not against appropriate use of structured products, however, I am yet to see an example of a good value, clearly explained and well priced product in Ireland which is taking returns from a relevant index or basket of indicies for the needs of a particular investor.
S&P who provide the index said in a presentation in 2009 that;
"With the value of passive investment being widely recognized, global asset managers and banks have been actively looking for new and innovative indices based on which they can launch new index-based products and differentiate their product offerings."
I could restate this and say. Passive investing works and everyone knows it. Therefore in order to be able to sell more products than the next guy you need a different index and we can give you just that.
As an investor I don't care if the product providers are having a hard time selling products. This isn't a good enough reason to develop new index strategies.
As an investor all I want is a sucessful investment experience.
For more information on why tracker bonds are a relatively poor investment see [broken link removed]