European Defensive SupertrackerNovember 17, 2014 - 13:47
European markets are obviously not beyond downside pressures but offer potential opportunities depending on the strength of local leadership as well as the wider geopolitical environment.
The question we’ve asked at Cube is how to play this uncertainty while benefiting from a range of potential outcomes?
We like the European Defensive Supertracker as it provides:
- Solid 10.3% aer for only a 15% rise in the index while delivering positive returns even if the index falls by up to 15%.
Capital protection barrier at 60% (European)
- Removes currency risk
• 60% European Barrier
• 2.67 times the growth in the Eurostoxx50 between 85% and 115%
RATIONALE: HOW THE CAP FITS
Let’s assume a 5.5% per annum total return from the European index in the coming years with dividends accounting for 3%of this and a moderate 2.5% annual capital growth, making up the remainder. If the market does deliver this return then a tracker fund would be up around 40% (15% growth and 20% from dividends) in six years.
If the index is up 40%, the Eurostoxx Defensive Supertracker will be up 80%, twice the return from the tracker.
Meanwhile, the capital protection barrier is comfortably below the 2011/2012 lows.
The chart below illustrates why we think this is such an attractive shape right now: