Author Topic: Would you invest in this? iii  (Read 2819 times)

bobmarley9993

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Would you invest in this? iii
« on: June 04, 2014, 08:41:30 PM »
Scotiabank, a huge canadian bank has a structured product that sounds interesting.  Essentially they invest in 10 stocks for 3 years and at the end you get the stock appreciation up to 20%.   No dividends but downside is fully protected.  Also there is a 5 yr version capped at 60%.  Its not phenomal but downside protection is appealing these days.

butchmonkey

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Re: Would you invest in this? iii
« Reply #1 on: June 04, 2014, 09:16:21 PM »
Can you choose the stocks?


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KingCoin

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Re: Would you invest in this? iii
« Reply #2 on: June 04, 2014, 09:17:47 PM »
Buying this type of structured note at issuance is always a rip-off. They're cleverly developed so that they look more attractive than they actually are. I think they're interesting if you can source them cheaply in the secondary market.

Your max upside here is 6% a year compaunded. Your expected return is probably closer to 2-3%. Basically, you might as well just buy some Scotiabank bonds at similar return with lower risk.

Note that you likely have unsecured Scotiabank risk, so these aren't really "principal protected", a fact that holders of similar Lehman notes learned the hard way.

bobmarley9993

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Re: Would you invest in this? iii
« Reply #3 on: June 04, 2014, 09:20:16 PM »
Can you choose the stocks?


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No, but they are a decent batch.

bobmarley9993

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Re: Would you invest in this? iii
« Reply #4 on: June 04, 2014, 09:24:04 PM »
Buying this type of structured note at issuance is always a rip-off. They're cleverly developed so that they look more attractive than they actually are. I think they're interesting if you can source them cheaply in the secondary market.

Your max upside here is 6% a year compaunded. Your expected return is probably closer to 2-3%. Basically, you might as well just buy some Scotiabank bonds at similar return with lower risk.

Note that you likely have unsecured Scotiabank risk, so these aren't really "principal protected", a fact that holders of similar Lehman notes learned the hard way.

Thx for the feedback.

The product is covered by federal deposit insurance so little risk there.

Does the 5 yr product sound better?

Mr Mark

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Re: Would you invest in this? iii
« Reply #5 on: June 04, 2014, 10:39:14 PM »
Buying this type of structured note at issuance is always a rip-off. They're cleverly developed so that they look more attractive than they actually are. I think they're interesting if you can source them cheaply in the secondary market.

Your max upside here is 6% a year compaunded. Your expected return is probably closer to 2-3%. Basically, you might as well just buy some Scotiabank bonds at similar return with lower risk.

Note that you likely have unsecured Scotiabank risk, so these aren't really "principal protected", a fact that holders of similar Lehman notes learned the hard way.

+1

The cap on returns plus taking dividend. 


The fact people clearly spend such vast amounts on this stuff amazes me.

again, I suggest we start an affiliate investment funnel vehicle in exchange for a betterment- beating 0.14% in fees.

just think, once we have 10  billion under management,  that's a sweet 14 million per year for doing some vanguard work once a month.

KingCoin

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Re: Would you invest in this? iii
« Reply #6 on: June 05, 2014, 06:14:28 PM »
Without getting into specifics it's easy to see how you could structure this more cheaply yourself.

Poking around Bloomberg, it looks like 3yr CAD swap spreads are around 1.6%. This means you could buy a 3yr 0 coupon bond for around $95.5.

A 3yr, 20% call spread on the S&P500 costs 3.4pts.

Combining the two, you pay $98.9 for the same thing Scotiabank is selling you for $100.

Depending on the stocks they include (things like dividend yield and implied vol matter a lot), and other bells and whistles they throw in (feel free to post the prospectus), the economics could work out even worse for you. Not to mention the fact that this structured product will be much less liquid than it's component parts.

I'd guess that you'd be even worse off with the 5yr product.

Mr Mark

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Re: Would you invest in this? iii
« Reply #7 on: June 05, 2014, 07:19:51 PM »
Part of me has to admire the product development and marketing graduates, plus all those quant PhDs and Harvard MBAs that go into coming up with this shit.

arebelspy

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Re: Would you invest in this? iii
« Reply #8 on: June 07, 2014, 01:04:42 AM »
Without getting into specifics it's easy to see how you could structure this more cheaply yourself.

Poking around Bloomberg, it looks like 3yr CAD swap spreads are around 1.6%. This means you could buy a 3yr 0 coupon bond for around $95.5.

A 3yr, 20% call spread on the S&P500 costs 3.4pts.

Combining the two, you pay $98.9 for the same thing Scotiabank is selling you for $100.

Well played.

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