Why the Blue Chip GIC isn'ta blue chip investment
18.05.12
It’s important to note, however, that the investor didn’t actually own the stocks or receive the dividends. Rather, the price change of each stock was plugged into the formula to determine the GIC’s variable return.
Specifically, if a stock rose – no matter how much – it was deemed to have an “effective return” of 4 per cent. If a stock fell, the effective return was the same as the actual price change, with losses on each stock capped at negative 10 per cent.
The variable return was then calculated as the average of the effective returns. This amount was then added to the 0.2-per-cent guaranteed return to determine the GIC’s final return. If the average effective return was negative, the variable return was deemed to be zero.
The results
I won’t go into all the gory details, but suffice it to say that 2011 was a lousy year for the market, and seven of the 10 stocks fell. As a result, the variable return on the GIC was zero.
Source: Globe and Mail