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Is a 722% return over 7 years too good to be true?!

My first response to the claim that someone could earn 722% in just 7 years was initially met with great skepticism, like when you come across a youtuber who promises extraordinary performance, Guaranteed!!. But when I dug more into it there may be a right-place – right-time aspect to this.

This particular opportunity falls in the category of Accelerator Notes, which happen to be a subset of Principal at Risk notes that are offered by all of the Canadian banks and some credit unions. Notes are big business for the banks and accelerator notes have been around for quite some time. Generally speaking, notes are broken down into income and growth categories, both of which use derivatives to achieve their goals. Income notes are more binary in nature; say if a basket of stocks has a positive return, any positive return, the note will pay out a predetermined yield like 8%.

Accelerator notes are different and they promise to pay a multiple of a stock’s return over a period of time. Now, given the volatility in the market and in particular in the banking sector, Bank of Montreal has issued a note that promises to pay 722% of the price return of the Bank of Nova Scotia. Given that notes are senior secured obligations of the issuing bank there is some security to the promise.

To be clear, in order for an investor to earn a return of 722% over the 7 years that would require BNS shares to double. That’s a fair point. BNS shares are currently trading at $65 down from their high in 2022 of $93. That $28 recovery represents a 43% return on the stock in which case the note investor would receive 311%. But, given how arguably undervalued the shares are and their track record of growth there’s a very reasonable chance the stock doubles in the next 7 years in which case investors could see returns that create generational wealth, depending on their appetite for risk.

If you’re interested in learning more about the BMO BNS Bank Note, ask here:

One Comment

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