Understanding the BNP Paribas High Dividend Plus Index

Transcription

1 Understanding the BNP Paribas High Dividend Plus Index

2 Key Features of the BNP Paribas High Dividend Plus (HD Plus) Index ȥȥ ȥȥ ȥȥ ȥȥ Each month, 40 stocks are selected through a unique methodology (explained later in this brochure) which creates an Index of 12 subportfolios; each sub-portfolio is individually rebalanced once a year. This rebalancing frequency helps to limit turnover and associated fees as the stocks in each sub-portfolio are held for 12 months. A focus on selecting stable, growing companies that pay strong and consistent dividends. Based on the strategy of purchasing high-dividend, safe stocks in order to create portfolio value, the HD Plus Index focuses on selecting highly liquid, non-financial U.S. stocks with the potential to pay high dividends. Yield enhancement through call options. To improve on the principal strategy, the Index includes exposure to a call option strategy, on the S&P 500 Index that generates additional yield. Potential for risk reduction through put options and cash exposure. In addition, the Index also utilizes a put option strategy on the S&P 500 Index and allocates a variable portion of the portfolio to cash, in order to reduce volatility and risk.

3 Security Benefit Before taking a deeper look at the HD Plus Index, understanding how a Fixed Index Annuity (FIA) provides value, and why indices are used in an FIA, are important concepts that will help you make an informed decision. How a Fixed Index Annuity Provides Value A Fixed Index Annuity offers the best features of a traditional fixed annuity a guarantee of purchase payments and tax deferral combined with the opportunity to increase the value of your retirement savings by offering one or more interest crediting options based on an index. By employing a market-based index as an interest crediting option, a fixed index annuity has the potential to credit interest when the index goes up; however, if the index goes down, your purchase payments and previously credited interest are locked in and will not decline. Unlike other savings vehicles where the account balance may decline due to market performance, purchase payments and previously credited interest in a fixed index annuity are guaranteed to never go down due to market downturns. Why Use an Index? An index is a way to measure the performance of a select group of financial assets as a benchmark to determine interest crediting. A fixed index annuity may increase in value by, at the owner s option, crediting interest based on a formula that links to a market index, without the risk of direct participation in those markets. Using an index in a fixed index annuity allows for interest to be credited based on a strategy that is linked to the market or markets represented in that index and any potential gains, without being subject to the potential downturns of the market. Typically, most fixed index annuities offer a simple fixed rate and stock or bond market-linked index options. In addition to more traditional index options, Security Benefit has teamed up with one of the global leaders in the financial services industry to offer a new interest crediting option: the BNP Paribas High Dividend Plus Index Account based on the BNP Paribas High Dividend Plus Index. 3

4 Security Benefit What Is the BNP Paribas High Dividend Plus Index? The BNP Paribas High Dividend Plus (HD Plus) Index is an excess return index (includes dividends) designed to find high-dividend stocks and attempt to deliver strong returns with a reduced level of volatility and risk. BNP Paribas has developed a unique methodology to build an index that starts with a dividend-focused stock portfolio and adds a yield enhancement overlay as well as a risk reduction overlay. On average, the HD Plus Index is typically comprised of approximately 75 to 80 highly liquid, non-financial U.S. stocks. Each stock had an average daily trading volume of at least $30 million over the preceding six months at the point of its inclusion in the Index. HD Plus Index Methodology The HD Plus Index is a rules-based strategy developed by BNP Paribas based on high-dividend stock selection with protective option strategies that seek to enhance yield and limit downturn risk. Every month, the HD Plus Index selects stocks that, based on the selection criteria, have a high probability of consistently paying strong dividends in the future. Each month, the Index uses this proprietary methodology (outlined below) to select 40 stocks that fit this goal. The overall Index is comprised of 12 sub-portfolios of 40 stocks each; each sub-portfolio is individually rebalanced once a year. The rebalancing frequency limits turnover and excessive fees associated with purchases and sales. Stock Selection Screen Visibility Visibility Dividend Track Record Dividend Growth Operational Outlook Financial Leeway Did the company increase its dividends each year in each of the past five years? Is the dividend expected for the next year and the year after that greater than the dividend for this year? Are the company s operations growing? Does the company generate enough free cash flow to maintain a high dividend in the future? 4

5 Security Benefit Stock Selection Screen Sustainability Sustainability Dividend Payout Is the company s dividend payout ratio reasonable? Dividend Stability Company Solvency Has the company been paying dividends over the past five years? Does the company have a reasonable level of debt? Can the company easily cover its interest payments? Each month, the universe of potential companies is re-evaluated through this unique screening methodology to determine 40 of the most stable dividend stocks to be included in the sub-portfolios. In addition, the Index includes exposure to a call option selling strategy on the S&P 500 Index that generates yield. In order to reduce volatility and risk, the Index utilizes a put option buying strategy on the S&P 500 Index. In order to limit volatility, the Index also has a cash exposure that is actively adjusted to achieve a targeted volatility rate of 6%, which is less than half of the S&P 500 Index s historical volatility. As the stock components exhibit increased volatility, the cash component of the Index is increased to reduce volatility. Key Terms Volatility. The amount of price variation. High volatility means the price moves up and down in wide ranges over a short period of time. Low volatility means that the price does not change dramatically, but rather changes at a more gradual pace. Call Option. The right to buy a set amount of shares of a particular stock or stock index at a predetermined price before a preset deadline, in exchange for a premium. For buyers who think a stock will go up dramatically, call options permit a profit from a smaller investment than it would take to buy the stock. These options also can produce extra income for the seller, who gives up ownership of the stock if the option is exercised. Put Option. Provides the right to sell a specified number of shares of a particular stock or stock index at a specified price by a certain date. The put option buyer gains this right in return for payment of an option premium. The put option seller grants the right in return for receiving this premium. A put option buyer hopes the stock will drop in price, while the put option seller (called a writer) hopes the stock will remain stable, rise, or drop by an amount less than his or her profit on the premium. 5

6 Security Benefit Index Exposure The graph below shows the relative weightings between the base component and cash for the HD Plus Index. The dark blue area shows the percentage of the base component while the light gray shows the corresponding percentage of the cash component. Overall, the HD Plus Index has had an average allocation to the base component of 60%. 100% 80% Relative Weightings 60% 40% 20% 0% 4/03 8/03 12/03 4/04 8/04 12/04 4/05 8/05 12/05 4/06 8/06 12/06 4/07 8/07 12/07 4/08 8/08 12/08 4/09 8/09 12/09 4/10 8/10 12/10 4/11 8/11 12/11 4/12 8/12 12/12 4/13 8/13 12/13 4/14 8/14 12/14 Base Component Cash About BNP Paribas A Financial Group with Global Reach BNP Paribas has a presence in 75 countries with more than 180,000 employees. It ranks highly in its three core activities: Retail Banking, Investment Solutions, and Corporate & Investment Banking. In its Corporate & Investment Banking and Investment Solutions activities, BNP Paribas enjoys top positions in Europe, a strong presence in the Americas, and solid and fast-growing businesses in Asia-Pacific. Now, Security Benefit is pleased to offer an innovative index crediting option in a Fixed Index Annuity based on the BNP Paribas High Dividend Plus Index. Who Developed and Owns the BNP Paribas High Dividend Plus Index? The Index was developed by and is calculated by BNP Paribas. Daily valuations are available on hdplusindex.com or FinancialTimes.com with the ticker symbol BNPIHDPL. 6

7 The Security Benefit Life Insurance Company ( SBL ) fixed index annuity is not, in whole or in part, sponsored, structured, priced, endorsed, offered, sold, issued or promoted by BNP Paribas or any of its affiliates (collectively, BNPP ), or by Standard and Poor s, a division of The McGraw-Hill Companies, Inc. or any of its affiliates (collectively, S&P ), or any third party licensor of information to either BNPP or S&P (collectively, the Third Party Licensors ). The BNP Paribas High Dividend Plus Index (the HD Plus Index ) is the exclusive property of BNPP and is determined, composed and calculated by BNPP BNP, BNPP, BNP Paribas, and The BNP Paribas High Dividend Plus Index (collectively, the BNPP Marks ) are trademarks or service marks of BNPP and have been licensed for use for certain purposes by SBL. The SBL fixed index annuity is not, in whole or in part, sponsored, structured, priced, endorsed, offered, sold, issued or promoted by BNPP or any of its affiliates, or any third party licensor of information to BNPP. BNPP s only relationship to SBL is the licensing of the HD Plus Index and BNPP Marks for certain purposes. S&P and S&P 500 are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by BNPP. None of S&P, BNPP or any Third Party Licensor has any obligation to take into consideration any of the needs of SBL or any of the owners, annuitants or beneficiaries of the SBL fixed index annuity. NONE OF BNPP, S&P OR ANY THIRD PARTY LICENSOR GUARANTEES THE ACCURACY, ADEQUACY, TIMELINESS, COMPLETENESS OR AVAILABILITY OF THE BNPP INDEX OR ANY COMPONENT THEREOF OR DATA INCLUDED THEREIN, OR THAT NO ERROR, OMISSION, DELAY OR INTERRUPTION WILL EXIST THEREIN. NONE OF BNPP, S&P OR ANY THIRD PARTY LICENSOR MAKES ANY REPRESENTATION OR WARRANTY, AND EACH OF BNPP, S&P AND THE THIRD PARTY LICENSORS EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE BNPP INDEX, ANY BNPP MARK, AN S&P INDEX, TRADEMARK (INCLUDING S&P 500 ) OR SERVICE MARK OF S&P (COLLECTIVELY, THE S&P MARKS ) OR THE SBL FIXED INDEX ANNUITY, INCLUDING, WITHOUT LIMITATION, THOSE REGARDING (I) MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, OR (II) THE ADVISABILITY OF ANY PERSON INVESTING IN THE SBL FIXED INDEX ANNUITY. BNPP, S&P or any Third Party Licensor does not have any liability with respect to the SBL fixed index annuity in which an interest crediting option based on the HD Plus Index is included, and is not liable for any loss relating to the SBL fixed index annuity, whether arising directly or indirectly from the use of the HD Plus Index, any BNPP Index methodology, any BNPP Mark or S&P Mark or otherwise, even if any such person has been advised of the possibility of such a loss or damage, and whether in contract, tort, strict liability or otherwise. No purchaser, seller or holder of an SBL fixed index annuity, or any other person or entity, should use or refer to any BNPP Mark or other BNPP trade name to sponsor, endorse, market or promote the SBL fixed index annuity without first contacting BNPP. Under no circumstances may any person or entity claim any affiliation with BNPP without the prior written permission of BNPP. In calculating the performance of the HD Plus Index, BNPP deducts a servicing cost of 1% per annum, calculated on a daily basis. In addition, the HD Plus Index methodology embeds certain costs which cover, among other things, transaction, replication and funding costs. Such costs (if any) may vary over time with market conditions as determined by BNPP acting in a commercially reasonable manner. These costs reduce the potential positive change in the HD Plus Index and thus the amount of interest that will be credited to the SBL fixed index annuity that includes the HD Plus Index. The volatility control applied by BNPP may reduce the potential positive change in the HD Plus Index and thus the amount of interest that will be credited to the SBL fixed index annuity that includes the HD Plus Index. This brochure is not authorized for distribution unless accompanied by a Security Benefit Life Insurance Company fixed index annuity product brochure in which the BNP Paribas High Dividend Plus Index is an index option.

8 Security Benefit is a Kansas-based insurance company with a rich history of more than 120 years. We have become one of the fastest-growing companies in the U.S. retirement market. For more information about the BNP Paribas High Dividend Plus Index, visit hdplusindex.com. One Security Benefit Place Topeka, Kansas SecurityBenefit.com IM /01/20