125% of Interest on EBS investment

investment

what do people think of the Clear tracker 7 from EBS, it has an interest rate of 125% after 4 years

Worth an investment?

Kennie1

No it has not!!! It invests in a stockmarket index (eurostox 50 i think) It has a participation rate of 125% eg if you invest 1000 and the index goes up by 10% over the term, you get a return of 12.5%. The bond is underwritten by Irish Life Assurance.

For what it is, it not a bad investment but money is locked away for the term and you may get a higher return by puting your money on deposit on the other hand though the market is IMO good value at the moment so it could net you a tidy return

coylemj

I'd agree with everything kennie1 said above.

It's a very safe investment as your capital is 100% guaranteed. The return depends on the performance over the period of the Euro STOXX 50 index, an index based on a basket of 50 European companies in the Euro zone (so no currency exposure) - CRH is the only Irish stock in the index.

http://www.stoxx.com/indices/index_information.html?symbol=SX5E

The index hit 3,077 today, a 52 week high as the stock markets are doing well these days. It's peak in the past five years was 4,572 in June 2007, obviously this was before the Lehman Bros. collapse which brought the house down around it so there is some potential upside.

The brochure says that they will smooth out the exposure to this index over the last 12 months of the investment if you're investing for 4 years & 6 months which is what you appear to be considering. So effectively what you will get will be 125% of the growth in the index, averaged out over the last 12 months of the investment.

investment

So if I invest 3000 euro's

what will my return look like?

coylemj

kennie1 gave you the answer above, if it goes up by 10% you'll get a 12.5% return which means you'd get a total of 3,375 for an initial investment of 3,000.

For every 1% that the index rises, the dividend would be 37.50. However bear in mind that the index could drop in which case all you'll get back is your initial investment and you'd have been better off putting it in a regular savings account paying 3.5% p.a. which is roughly what's on offer these days.

I calculate that at 3.5% p.a. in a savings account an investment of 3,000 would yield 3,500 after 4 years and 6 months. In order for the EBS Clear Tracker 7 to beat this, the EURO STOXX 50 index would need to rise by more than 13.4% over the period.

Jayminato

9/10 of these tracker bonds end up returning clients capital and zero growth.... Would nt be my cup of tea to be honest. The time for a decent tracker bond was about 18 months ago

whysomoody

Jayminato wrote: »

9/10 of these tracker bonds end up returning clients capital and zero growth.... Would nt be my cup of tea to be honest. The time for a decent tracker bond was about 18 months ago

9 out of 10?

Jayminato

whysomoody wrote: »

9 out of 10?

Ya really that high. The last 4 trackers launched by a company i have an agency with for the last 20 years have produced €0 profit for clients. Just capital back, so as ya can tell i aint a fan. I would much prefer a portfolio that offers flexibility and diversiffication across 4/5 asset classes above all else...

coylemj

I'd be inclined to agree, they make lots of money for the financial institutions and the salespeople who sell them but not very much for the mugs clients who buy the products.

Tracker funds were invented to make money for financial services companies. If you sell a product that's tracker based all you have to do is beat that index and you're in the money. What this involves is investing across the index except for the shares that you feel are going to underperform, then you make more than the index. The punter gets his payoff but you've beaten the index so you keep the difference.

A few years ago the Irish brokers started a whispering campaign against Eircom to talk down the share price, it was obvious that they were pushing it down to reduce the performance of the ISEQ because they had sold ISEQ trackers but had already dumped Eircom shares so the drop in the Eircom share price brought down the ISEQ and increased their profits on ISEQ tracker products.

Kristopherus

Ulster Bank are introducing a similar Bond to the EBS one. One big difference I noticed was that if Eurostoxx Index rose 0%, the invester would get 14% over the 4 yrs. Link : http://www.ulsterbank.ie/roi/personal/saving/long-term/index-bond/key-features.ashx