Pinnacle Notes: Are they worth getting?
Pinnacle Notes or any other structured products are not as straightforward as they look. They are not worth the trouble. They appear to offer good returns of up to 8.8%, but the investor takes the bulk of the risk. My friend asked me whether she should invest in Pinnacle Notes Series 8. She is someone who is very risk averse and also does not want to spend too much effort in figuring out the other ways of investing. I had just learnt about such products over the weekend, and had a comprehension of a similar product, so I was in a position to answer her.
The performance of the Notes are linked to the share price performance in these companies:
1. Singapore Airlines Limited
2. Singapore Exchange Limited
3. Singapore Press Holdings Limited
4. CapitaLand Limited
5. Keppel Corporation Limited
6. DBS Group HOldings Limited
7. Oversea-Chinese Banking Corporation Limited
8. United Overseas Bank Limited
How the Pinnacle Notes work:
1. Spend S$10000 on the notes.
2. Wait for results of Worst Performing Stock (WPS), the stock that has the lowest percentage rise compared to the rest.
Worst Performing Stock
|
No |
Range | Percentage Return p.a. |
| 1 | 100% and above | Possible Knock out |
|
2 |
95% and above of initial price | 8.8% |
|
3 |
90% to less than 95% | 4.8% |
|
4 |
Less than 90% | You may lose some or all your capital as capital is not guaranteed. |
There is no way the customer can win.
Assuming the stock market is doing great, and all the stock prices increase by 10%, some probably more, you will only get back a maximum of 8.8% in interest. Where does the other 1.2% go? This will be considered part of their expenses. If all the stocks make 20%, you still only get a maximum of 8.8%. The rest of the 12.2% does not go to your pocket. And because of a knock-out feature, if the closing price of WPS is at or above 100% of Initial Spot price, you will not be able to continue to invest. They will return you your money. Remember, the 8.8% is based on per annum, so if your Notes are knocked out within 3 months, you will only get 2.2% interest maximum.
Let’s say most of the stocks did well, except for the WPS. Perhaps this blue chip company had adverse publicity or they lost money due to some reasons. It may drop to 90% of its initial price, and you will only get back 4.8% in interest. This could happen even if the rest of the stocks increase by 20%.
If there were a scandal at one of the companies the Notes are tracking, and the stock price crashes. Even if the rest of the companies do well, you may still lose part or all of your capital.
Just based on the three simplified scenarios, there is no way the investor can win. Probably the investor can win if all the companies did not make much money, but then again, the 8.8% interest is not guaranteed.
Most likely, the notes are targeted at the lay person who thinks that investing in the notes offer better returns than putting the money in local fixed deposits. However, the risks here are greater, and they protect the issuers more than the consumers. There are so many other ways to grow your money. Even unit trusts have a better chance of making more money.
You may also take a look at how Tan Kim Lian feels about such structured products as he writes about avoiding complicated products.
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I’ve bought the Pinnacle Notes Series 5 sometime back. How do I track the performance of this Notes, ie. how much I can get back if I were to redeem early. I’ve invested in this for less than half a year and have not received any interest from them yet. Given the volatile US market and subprime problem, should I redeem now and make a slight loss or hold till maturity. Thanks for your advice.
Hi Linda, I’m not in a position to fully advise you on this.
Perhaps you could call the bank up, or the brokerage you bought the notes from.
According to the prospectus, you may not be able to get back your full capital if you sell before maturity rate.
You may want to check out this forum for more discussion on Pinnacle Notes.
http://forums.sgfunds.com/printview.php?t=3560&start=125&sid=1fdc95b0630e3147616021656d195e98
[...] whether their entire investment would be gone, as so long one of the companies went belly-up, the structured notes would be terminated. With the huge bailout from the US government that is supposed to be hundreds of [...]
Pinnacle Notes 9 and 10 have defaulted and investors will be getting back nothing.
its like a scam
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