etoro - Market gains without risking what you put in

efunc

Is anyone familiar with this, or similar offers?

capital protection account

I received this marketing email from etoro which piqued my interest. It claims that if you remain invested for 2.5 years you're guaranteed to get out at least what you put in, but possibly more. The investments are 50% in equities like S&P 500, FTSE 100, and 50% Bonds (iShares iBonds Dec 2028).

On the face of it this seems intriguing because I have concerns of current market valuations, particularly S&P500, being highly inflated and being largely driven by the mag 7 whilst being dragged down by much of the rest. I was seeking a 'capital preservation' home for a year or two while I literally take stock of the conditions and reassess. This account mitigates some of my concerns but still exposes my capital to some potental growth if there is any in the meantime. However I'm not that keen on the S&P500 representing 25% of it.

Furthermore, if things don't perform all that well over 2.5 years you're only likely to get back what you put in, ie an inflationary loss of 4-6% a year, depending on what figure you believe., so not too attractive. Capital protection, but not preservation. For perspective, there are savings accounts paying out 4.9% at the moment.

So, is this product unique, or are there other's like it? Better ones perhaps?

NoMore

You're at currency risk as the guarantee only applies to USD and a get out clause

T&CEquityHedge.pdf

Your Guaranteed Amount is in USD only, regardless of any non-USD currency referenced in
the PG Smart Portfolio name (including Equity-HedgeEUR and Equity-HedgeGBP). Your
investment in the PG Smart Portfolio is made in USD, although assets held within the PG
Smart Portfolio may be denominated in currencies other than USD, and any non-USD values
displayed on the platform are for DISPLAY PURPOSES ONLY. Your qualifying investment

There is the possibility of the occurrence of a market disruption or other event beyond our reasonable control which has or will have a material adverse effect on our ability to manage the related risk, or to otherwise perform our obligations under these Special Conditions. If such an event occurs, we may, acting reasonably, take such action as we deem necessary, including (without limitation) advancing or delaying cashing of the Guaranteed Amount. The Guaranteed Amount is calculated, denominated and applied exclusively in United States Dollars (USD). Any non-USD currency values displayed on the platform are for display purposes only.

masonic

So you are giving up dividends and bond interest in exchange for capital protection (they only mention equity gains being added to the guaranteed balance at maturity). That could amount to a fee of around 3% per year, which could be worth it if markets tank over the next couple of years. I guess only a loss of >10% over the term would cause them to have to cough up any of their own money.

Similar to the old "Guaranteed Equity Bonds" that were the subject of mis-selling by banks a few decades ago. There were examples of those where you'd get back a guaranteed sum plus 50% of the capital gains of some blended equity indexes, which is essentially what you are buying into here.

efunc

https://forums.moneysavingexpert.com/discussion/comment/82045121#Comment_82045121

Thanks, that's very good perspective, so as I thought, a bit too good to be true. On that basis I'm pobably going to acheive more predictable and slightly better outcomes by allocating 50% into short duration gilts and 50% high interest cash savings for a 18-24months window.

Equities may continue to inflate of course, and I do have a small allocation. But more experienced voices than me suggest that after the initial AI IPOs and hysteria we may be due a significant market correction. The etoro offer seemed perfectly positioned to safeguard against this, but maybe not then.

It seems to me that maybe it's no longer sensible to be blindly tracking passive indexes, as I have in the past, and instead put together a small portfolio of broad, high quality, dividend paying stocks instead and monitor closely. A combination of the above is probably where I'll start.

masonic

Back in the day I can remember dunstonh suggesting a "DIY" version with some in equities and a cash ISA.

Ultimately, the best de-risker is bonds/cash. High yield stocks, even the quality variety, tend not to be a safe haven as indiscriminate selling takes over. It may soften the blow a little, but don't expect too much.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82045240#Comment_82045240

There will be a correction, the problem is no-one knows when and said correction could be outdone by growth in the meantime. If the experienced voices thought it was imminent they'd already have done what you're doing and the markets would already reflect it. There was certainly a pull back today, but you never know if it's the start of a trend or just a blip until you look in the rearview mirror! But there's a lot to be said for own peace of mind, and it could be worth giving up some return for that (but not via this instrument probably!)

efunc

I don't have any real insight, so just trying to better understand, but is it possible that the growing trend and consolidation of ETFs, and the massive captial inflows overseen by vanguard, blackrock, jane street, et al, completely skew the market and agregate things into concentrated pools. This has only been the case, growing over 20-30years, and maybe makes traditional market behaviour harder to read? Retail investors, like me, can easily be swept up in a religious faith in market returns, largely inflated by passive investment.

InvesterJones

https://forums.moneysavingexpert.com/discussion/comment/82045299#Comment_82045299

Not nearly enough yet to skew the market, especially given the non-skewing nature of most passive investment. Faith in returns over the very long run is not what most people would call religious, it's instead informed by a LOT of historical data. Of course, the future could always be different…

poseidon1

The etoro protection product appears to have some points of comparison to a host of Structured Investments Products sold in this country for many years by the big banks and accredited financial intermediaries - see below -

https://www.six-group.com/en/blog/understanding-structured-products.html

However, Etoro does state theirs is transparent, UCIT compliant whilst of far shorter term and smaller minimum investment. Therefore more accessible to smaller retail investors

From a personal standpoint I have always found Structured products offered by the banks to be largely opaque and often impenetrable to completely understand and often wondered why the regulators deemed some of these products to be suitable to be sold to an unsuspecting general public - examples of some current offerings below -

https://www.wcgplc.co.uk/structuredinvestments/currentoffers

What is common with regard to products in the above link is the financial strength of the banks underwriting the counterparty risk. They are all extremely large international entities with big fat balance sheets. Etoro by comparison is a minnow with a comparatively tiny $2.8 billion market cap, so in my opinion this has to have a bearing on the resilience of the capital protection they offer.

efunc

https://forums.moneysavingexpert.com/discussion/comment/82045998#Comment_82045998

Thank you for the links. I'm trying to understand this product and what the catch is:

https://www.bestpricefs.co.uk/structured-products/06112024-uk-defensive-growth-deposit-plan/

The Walker Crips UK Defensive Growth Deposit Plan (SAN139) is a 3-year structured deposit plan issued by Santander UK plc. It offers the potential for a gross investment return of 18.50% (≈ 6.166% p.a. equivalent) at the end of the 3-year term, depending on the performance of the FTSE 100 Index. [1, 2, 3, 4, 5]Key Plan Details

• Provider/Issuer: Santander UK plc
• Investment Term: 3 years
• Potential Return: 18.50% total gross return at maturity
• Underlying Index: FTSE 100 Index
• Minimum Investment: £10,000 [1, 2, 3, 4, 5]

Important Dates (2026)

• ISA Transfer Deadline: 26 June 2026
• Cheque Application Deadline: 8 July 2026
• Bank Transfer Application Deadline: 10 July 2026
• Start Date: 17 July 2026 [1, 2, 3]

How It Works & Risks

• Defensive Mechanism: Your return depends on the FTSE 100 Index. Depending on the exact defensive threshold, you may receive the return even if the index does not grow, as long as it does not drop below a certain pre-defined level. [1, 2, 3]
• Capital Protection: Because it is a structured deposit rather than a market-linked investment, your initial capital is typically protected from stock market risk at the end

—-So the headline '18.50% potential return over 3 years' on the face of it makes it look like a relatively simple and attractive offer, but I guess it's anything but! Do I understand it right that if the FTSE100 remains above 90% of it's index value after 3 years you could earn 18.5%? But if it doesn't then you just get you capital back? And the fact that you need to subscribe to this via a FA presumably reduces this further anyway. There must be a reason these products are not more widely known. The combo of Santander and FTSE100 on the face of it seem pretty assured compared to some wildly speculative things out there. The catch?

EthicsGradient

https://forums.moneysavingexpert.com/discussion/comment/82045121#Comment_82045121

While the "no dividends or interest" would make sense for where their money to hedge against a market fall would come from, I can't see it explicitly stated in any of their descriptions. They do say the 50% in iShares iBonds Dec 2028 is "Investment-grade corporate bonds [to] help provide stability and income over the portfolio term", which to me implies you ought to benefit from the dividends from that, if the level of the share indices doesn't swallow it up. But I can't see any "ongoing charge" figure for how they invest in the hedged indices, which you'd think they'd need to specify for regulatory reasons, as well as what happens to dividends.