After the FTSE MIB covering Italian companies and the S&P 500 American ones, we are back with a new capital protected product on Oval. This time we moved our focus to the European stock market by choosing the most important index to track European companies, the EURO STOXX. But we have added a twist, we chose the one that only tracks the 30 companies across 11 Eurozone countries (Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain) that pay investors the highest dividends. It is called the EURO STOXX Select Dividend 30.
Why do companies pay dividends?
First of all, let's explain what dividends are. Dividends are money from the company’s profits, which, in the event of growth, is paid back to investors, based on the number of shares they hold in the company. It is a kind of bonus for investors.
Not all companies distribute dividends. Some companies, especially small and medium-sized ones, keep all their profits to reinvest in the company and its growth. On the other hand, more mature companies with consistent profits and performance often have less need to reinvest the profits and can therefore distribute dividends to their investors.
Why select this index?
By investing in Eureka you will not be receiving a dividend payout, but the fact that these companies have high dividends and that they have paid them out consistently is an indication of their stability over a long period of time. In general, companies that pay out a dividend attract more investors, driving demand for their shares.
The companies in the index cover traditional large sector industries that have driven the European economy like insurance, automotive and industrial goods and services. It is also heavily-focused on Germany and France. Italy on the other hand, is making more than 6.5% of the index.
Let's have a look at the companies inside the index
The largest companies in the index are banking and insurance companies, such as the Italian Assicurazioni Generali, AXA in France, and the German Allianz. These are the three companies with the highest profits in Europe.Assicurazioni Generali was born in Trieste in 1831, under the Austro-Italian empire even though its logo takes the picture of the famous lion of Venice. ‘Generali’ means general and indicates that the company was already involved in every branch, from marine to fire and life insurance. AXA, insurance and asset management giant, has its headquarters in Paris where it was founded in 1816 as "Mutuelle de L'assurance contre L'incendie", changing its name to AXA only in 1985. The CEO at the time wanted a name that could be said easily in any language and hired a consulting company to search for one, leading to one of the first versions of a computer-aided search. Allianz was founded in 1890 in Berlin, the latest of the three. In 1900 they became the first insurer to obtain a license to distribute corporate policies. It has now become the largest insurance company in the world, with 150,000 employees, operating in 70 countries with over 85 million customers.
Another company that you might be familiar with is BMW, born in 1916 as an aircraft engine manufacturer. It started making cars in 1928 and in 1955 the BMW Isetta, initially created by the Italian company ISO, became the top-selling single-cylinder car in the world with 161,728 units sold. Today the company runs production plants all over the world between Germany, Indonesia, Mexico, United States, South Africa, Egypt, Thailand, Malaysia and India.
The index has delivered 2.3% returns since 2005, before the market crash of February 2020 and, despite the growth trend of recent months, it has not yet returned to pre-emergence COVID-19 levels.
With Eureka we are giving our users the opportunity to invest in a product that tracks the EURO STOXX Dividend Select 30, starting from €100. But it also has some very special features.
- You will have 100% participation in the performance of the index at maturity in 5 years. Let's say you invest €10,000. If the index in 5 years has had a positive return of 20% you will get €12,000 at maturity.
- You can enjoy the upside of the market, whilst having your initial investment protected 100% against losses when held to the maturity of 5 years. Let’s say you invest €10,000. If, at maturity, the index has a negative return, you do not lose any money, you will still get €10,000 back.
- You can sell your position after the first 100 days at the end of day market price shown in app, with a maximum exposure of 10% (it’s the maximum you can ever lose no matter how bad the EURO STOXX Select Dividend 30 actually performs)
- We’ll collect investment orders until September 25th, and it is not possible to set up recurring investments.
What is the potential payout?
Capital Protected products are a way to see your money grow without the risk of losing the initial capital invested.
The product is intended to be offered to retail investors who fulfill all of the criteria: they are sophisticated and experienced in trading complex securities; they are looking for an investment opportunity that reflects an expectation that the underlyings will increase in value over time; they are looking for an investment opportunity that guarantees the capital and a premium at maturity; and they have a medium-term investment horizon.
If you compare the potential performance of Eureka to a term saving account by any Italian bank that today offers about 0.1% (average of the large banks saving account offers today), this can be your potential return as shown in the best possible scenario explained in the KID available for you.
Signals from the markets
We are excited about this product and investment opportunity because of these reasons:
- On July 21st 2020, EU leaders agreed on a comprehensive package of €1,824.3 billion that combines a multi-annual financial framework and a recovery fund, to help rebuild European companies post COVID-19 transition.
- European markets have a higher component of cyclical stocks, 50% of market capitalization compared to 34% in the US. Cyclical companies are the ones that recover the fastest as the economy starts to pick up again.
- European Equities also have a huge exposure to global themes, with 54% of revenues of European companies coming from outside the region. For example, large luxury brands gain exposure to a fast recovering Asian market.
All in all, here at Oval we are proudly European and believe in the future of our region, always with peace of mind that your initial investment is safe.
Oval does not offer investment advice. If you are not sure that the product we offer is suitable for you, contact a financial advisor. Product information documents are available in the app.