Not falling for hype

This is a little belated but I simply had not had the time to sit down in front of the computer at home. This is something that I had written about some time back in regards to UOB offer to buy back certain structured products. At that time, I already made it clear that I see it as nothing more than a publicity stunt by UOB and that investors should just sit tight and hold on to their investment. Looks like I was right. I wondered if UOB actually redeemed the funds as they said they would or did they actually sat on it for a while and made a tidy little profit in the process?


For those interested in my previous article 

Reward for holding on

Investors in structured Prudential Yield product likely to make tidy profit
by Julie Quek 05:55 AM Jun 04, 2010

SINGAPORE - It was a structured product that was on the brink of collapse last year.

But investors who had held on to the Prudential Yield 15 and Yield 20 funds managed by Prudential Asset Management (Pams) look set to walk away with a tidy profit when the fund matures next Thursday.

In October last year, United Overseas Bank (UOB) made a buyback offer to about 4,000 customers who purchased the funds through the bank. UOB offered to redeem their units at par value or the initial price they paid for the investment, less all yearly payouts such as the interest coupon to date - or at 88 cents for Yield 15 and 82 US cents ($1.15) for Yield 20.

Other distributors of this structured product were HSBC, Maybank, Prudential Assurance Company Singapore and Hong Leong Finance.

At its lowest point, the Yield 15 and Yield 20 had dived to 37.5 cents and 39.8 US cents, respectively, at the end of March last year.

But improved credit conditions this year have caused the funds to recover and the price of each unit has rebounded to $1.074 for Yield 15 and US$1.104 for Yield 20 as of May 27.

Investors who held on to the fund for five years until maturity would also have earned 15-per-cent returns in coupon payments for the Yield 15 notes. This works out to about 3 per cent coupon interest a year. Meanwhile, holders of the Yield 20 fund would have collected 22.5 per cent over the 5-year investment period of the fund.

For investors, the potential capital gains coupled with the coupon payments mean that they would walk away from the fund in a better-off position at maturity than if they had redeemed those notes last year.

A retired investor who declined to be named told MediaCorp that she regretted her decision to accept UOB's buyback offer last year as this meant she lost out on the 15-per-cent returns from the coupon payments.

However, former NTUC Income chief executive Tan Kin Lian told MediaCorp that he advised these investors not to regret their earlier decision, because no one would have known whether these funds would do well or fail at maturity this year.

The fund was in trouble last year and early this year, when it suffered a total of 17 defaults out of its 100 reference entities in its portfolio.

Had the fund been hit by six more defaults, the funds' capital would be adversely affected.

Customers are expected to receive their maturity proceeds by end-June.