Altamira Canadian and Global Blue Chip Notes

While I was driving home work today I just caught the end of an advertisement for something called “Altamira Canadian Blue Chip Note.” I did not really know what it was all about but it sounded interesting. I have never owned an Altamira fund before but they have the lowest cost index funds in Canada (besides TD’s eFunds which are only available to TD clients) so I like them.

It turns out there are not one, but two varieties of Altamira Blue Chip Notes, the Canadian Blue Chip Note and the Global Blue Chip Note. Here are the important facts:

  • The issue date is March 1, 2006
  • The maturity date is March 1, 2014 (8 years from now)
  • The issuer (National Bank of Canada) has the option of “calling” (redeeming) the note early after four years. They will pay out a premium of 46.41%, which corresponds to about (1+0.1)4, 10% compounded over 4 years.
  • The Canadian Blue Chip note is comprised of 20 Canadian Blue Chip stocks in equal proportion (5% each) and the Global Blue Chip note is comprised of 20 global companies (primarily US).
  • When the note matures after 8 years the return is based on the price appreciation of the diversified basket of 20 Canadian companies. Essentially you capture the growth of the underlying stocks over the 8 year period; however, if the return of the stock basket was negative, you are paid out the principal amount. So effectively, your principal is preserved no matter what happens to the stock market.
  • No income taxes payable during the holding period.
  • Notes can be sold in a weekly secondary market maintained by National Bank Financial
  • National Bank of Canada guarantees repayment and has an A credit rating from S&P and DBRS.
  • 100% RRSP eligible
  • Minimum investment is $500 (5 notes, at $100 per note)
  • “The Bank will not charge any management fee in respect of the Notes. However, purchasers should realize that the Ordinary Dividends paid in respect of the shares comprising the Benchmark Portfolio will not be reinvested in the Benchmark Portfolio.”
  • No rebalancing of weightings in the underlying stock basket

These remind me of Canada Savings Bonds, but a bit more exciting. Have these things existed before? The top 20 stocks in the S&P/TSX 60 Index make up about 70% of the index, so owning the basket of 20 stocks in the Altamira Canadian Blue Chip Note is not much different. Also it looks like there is no management fee (how is that possible?) This seems like a great alternative to iUnits XIU ETF with the added protection against a market downturn.

One disadvantage is that you are somewhat locked in for either 4 or 8 years. Although I would see this feature as an advantage, preventing you from selling early and locking-in losses, and instead forcing you to ride out the ups and downs of the market to a higher return than if you had gotten out of the market after a downturn. The less we buy/sell/trade the better in my opinion.

2 thoughts on “Altamira Canadian and Global Blue Chip Notes”

  1. That sounds like a principal-protected note which is really a hedge fund. There is a risk in buying these things: you might not make any money over 8 years compared to around 4.5% you can earn with a risk-free Canada bond. The upside is also capped as you don’t capture the entire advance of the underlying securities (remember there are assorted fees). I think these are terrible products for most average investors.

  2. Yeah, I am a bit confused when they say “The Bank will not charge any management fee in respect of the Notes.” About the upside being capped, they do say that the potential upside over 8 years is “unlimited.”

    Now that you mention it, it does sound kind of risky. If the stock market does really well, they will probably call the note after 4 years and pay out the 10% annualized interest. If the stock market does poorly over the next 8 years, well they’ve just gotten a nice low interest loan from the note holders.

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