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Don’t be scared by a share split

Don’t be scared by a share split post image

Christ I’ve been robbed! That was my first thought as I stared at the 80% loss. Eyes on stalks, stomach in knots – I felt the panic rise like mercury in a heatwave.

This wasn’t 2008. This was last Friday1.

I had logged into my portfolio tracking account hoping for a shot of dopamine. Instead I got a stab in the amygdala. The ‘safest’ ETF in my portfolio was bleeding red.

An 80% loss. In one day. WTF?

It’s a short duration UK gilt ETF – Lyxor’s GIL5. It’s not supposed to do this. It’s supposed to be as volatile as a Care Bear.

What happened? Had the Bank Of England raised interest rates 30% while I was napping? Is the country on fire? Had Boris accidentally nuked London?

I tapped the screen like it was a faulty watch. Surely some mistake. I logged into my platform – AJ Bell. God. It showed the same thing. 80% down. The share price just fell off a cliff.

A graph of an ETF losing 80% in one day

This can’t be. I needed a rational explanation like a drowning man needs a life belt. Could Lyxor throw me one?

Its chart said everything’s fine, but the chart ended on Wednesday the 24th. The trouble started on the 25th but it doesn’t have a 25th. Why?

Lyxor's ETF performance graph says everything is fine.

At the bottom of GIL5’s web page – beyond the Passporting Information twilight zone – sits a Corporate News & Events link. There I saw a Notice To The Shareholders. Is this where Lyxor buries bad news?

Dear Shareholder…

It’s a share split. A share split!

I’ve been up to my elbows in ETF minutiae for over a decade yet I didn’t know ETFs split.

Relief at last:

The share split will only lead to a change of the number of the shares you hold but will be without any impact on your investment in the Company.

Every old share was split into five new shares. That was the explanation I needed: 1 / 5 = 20%. Hence the 80% apparent loss madness. My accounts haven’t yet updated the number of shares I own, and each new share is only worth 20% of an old share.

The notice continues:

Indeed, as of the day of the share split, the amount of your investment will only be expressed by a greater amount of shares.

So Lyxor is saying my pie is cut into more pieces but I’ve still got the same amount overall. Still, I’d be happier if everyone’s graphs didn’t show an 80% loss. Wherever I looked – Yahoo Finance, the London Stock Exchange – GIL5 jumps off the ledge.

A specialist site had the explanation. Portfolio Advisor confirms the split and say it’s down to my own platform, AJ Bell:

The Lyxor Core FTSE Actuaries UK Gilt 0-5Y (DR) Ucits ETF has temporarily suspended trading as it splits each stock into five new shares firstly on the primary market on Wednesday and then on the secondary market on Thursday.

The price on the ETF on Wednesday was £92 meaning its price would reduce to around £18 after the stock split.

AJ Bell had pushed for the changes to the ETF, which sits in its MPS [Managed Portfolio Service] range across risk levels one to three and in its lowest risk portfolio in its income range, because it makes it easier for smaller pots to invest.

A little more searching turns up an AJ Bell press release featuring its chief investment officer and Lyxor’s head of UK wealth congratulating each other on how the split shows they’re listening to their clients and small investors.

It’s a pity neither firm thought to clearly communicate to their small investors that the imminent 80% drop in their holding was nothing to worry about.

How hard can it be to write your customers a prominent, jargon-free message saying that contrary to appearances you haven’t been taken to the cleaners?

Quite hard it seems. AJ Bell did send a brief corporate action note but forgot to mention that a split leaves the value of your investment unmolested. How many small investors understand what a share split is and how it works?

That’s clueless customer service but Hargreaves Lansdown didn’t even reach that low bar. Their graph shows an 80% loss but they didn’t send so much as a customer message – or at least I didn’t get one.

If there are Monevator readers out there holding GIL5 (AKA Lyxor Core FTSE Actuaries UK Gilts 0-5Y ETF) please don’t worry. Everyone’s systems should soon update and you shouldn’t be left out of pocket.

To the industry: how about thinking about your customer’s needs and communicating to them in plain English?

Everybody hurts sometimes

For me, it was a reminder not to get too cocky. I’ve previously watched my portfolio sink over 20% and barely felt a thing, but this time was different.

My overall portfolio loss was minor but two things spiked my personal fear index:

  • Any 80% loss in one day is shocking.
  • I couldn’t explain it. There was no story about volatile equities to hang on to. This just shouldn’t be happening to a short duration government bond fund.

I couldn’t believe it and didn’t want to believe it. Without an explanation my imagination could run wild. I put a stop to that by searching my sources but for a moment it felt like having a dizzy spell, googling the symptoms and reading you might have ebola.

This time it was just a drill, but it’s a reminder that the worst that can happen is like nothing I’ve ever experienced.

Which is the reason I have those boring short-duration bonds in my portfolio, of course…

Take it steady,

The Accumulator

  1. July 26 2019 in case you’re reading this in 2031 or whenever. []
{ 11 comments… add one }
  • 1 mjcross July 30, 2019, 12:02 pm

    Oh yes – I too had that ‘moment’ on Sat AM…

    Fortunately, thanks to a suggestion from a friend, I’d created an alert for dividend and corporate actions (e.g. splits) for most of my ETFs so I pretty quickly remembered about the 5:1 split in GIL5 and mentally joined the dots.

    I created my (free) alerts on Investegate (www.investegate.co.uk) which works well for me, but there may well be other similar services…

  • 2 mjcross July 30, 2019, 2:00 pm

    On the subject of GIL5 I was interested to note that this period’s income was paid in the form of a ‘return of capital’, rather than a dividend… I wonder if someone more experienced than me could explain why this might be and whether it’s of any significance?

    Incidentally, I think you might be a *little* harsh in saying “It’s a pity neither firm thought to clearly communicate to their small investors that the imminent 80% drop in their holding was nothing to worry about. […] How hard can it be to write your customers a prominent, jargon-free message saying that contrary to appearances you haven’t been taken to the cleaners?”… Lyxxor’s announcement to the stock market on the 23rd July, forwarded to me that day by Investegate, seemed pretty clear to me….?

    Dear Shareholder,

    The board of directors of the Company (the “Board”) has decided to proceed with a share split of the shares of each class of shares within the sub-funds Lyxor Core FTSE Actuaries UK Gilts 0-5Y (DR) UCITS ETF (the “Sub-Fund”).

    The share split will only lead to a change of the number of the shares you hold but will be without any impact on your investment in the Company. Indeed, as of the day of the share split, the amount of your investment will only be expressed by a greater amount of shares.

    The Board has therefore resolved to divide the Net Asset Value (the “NAV”) per share of the Sub-Funds’ share classes and simultaneously increase the number of shares held by each of the Sub-Fund’s shareholders, by the factor 1:5. As a result, one share initially held in the relevant share class of the Sub-Fund will corresponds to 5 shares of the corresponding share class with a NAV of a fifth of its value before split.

    Such NAV division and simultaneous increase of the number of your shares shall be operated on 25 July 2019.

    To operate the share split, Subscriptions and Redemptions will be suspended:

    on the primary market from July 23, 2019 (at close) to July 25, 2019 (at close), and;
    on the secondary market from July 24, 2019 (at the opening) to July 25, 2019 (at close).
    Please note that any fees or costs incurred by the share split will be borne by the Management Company.

    For any questions, do not hesitate to contact Lyxor Client Services at the following contact details: Phone number +33 1 42 13 42 14 – Email address: client-services-etf@lyxor.com.

    Yours sincerely,
    For the Board

  • 3 Kraggash July 30, 2019, 2:34 pm

    I use the Portfolio tool on FT.com as a quick check on how my holdings are doing (I use FT as I download prices into MSMoney now and again) and it occasionally shows I have a £2.3m loss… That is obviously wrong, but it often shows incorrect prices, leaves out funds for a while which then re-appear, shows prices in p rather than £ (and vice-versa). It was scary for while, until I got used to it. It usually gets itself sorted out after a day or two.
    But I am surprised even FT cannot get a reliable Portfolio tool working.

  • 4 dearieme July 30, 2019, 4:17 pm

    Perhaps you should use Gold Sovereigns instead. None of this “splitting” stuff: either you still own them or Jeremy’s swiped them.

  • 5 Laurence Carr July 30, 2019, 4:20 pm

    I had exactly the same issue with this etf. The number of shares didn’t update until Monday after close of business. I did know a stock split was taking place as I had read the corporate action email sent to me by aj bell. I DIDNT know the number of shares wouldn’t update immediately but would be delayed a few days so I also got a significant loss on my holdings for a few days. Aj bell should have warned me that there would be a few days when my holding value would be reduced by 80%!
    I am also curious about the yield on this etf. It seems to be around 2.9% which is very high for a short duration gilt fund. I would expect it to be around 0.7%. Looking at the price chart it seems this has been going on for quite a time as the price is steadily going down with clear steps every 6 months. It seems that a lot of the yield is coming out of capital and only a bit out of income. Anyone know why this is?

  • 6 ZXSpectrum48k July 30, 2019, 7:58 pm

    @Laurence. The 2.9% is not referring to the yield-to-maturity (YTM) but to the “12-month yield”. Unfortunately this is not a yield at all but the weighted coupon rate of the portfolio. Most of these short-dated Gilts were issued a while ago when yields were higher, so the average coupon on these bonds is 2.93%. Given the actual yield to maturity of this portfolio is more like 0.47%, these bonds trade at a price above their redemption value of par (100). So while this portfolio will pay 2.9% in coupons per annum (albeit paying the coupon semi annually), these bonds will also fall in price as they “pull to par”, hence you will see an offsetting capital loss.

  • 7 Kevin Doran July 31, 2019, 7:37 am

    It’s a fair shout. Would have been an easy add to our release to give some reassurance about the mechanics of the split. I guess after 20-odd years of witnessing splits you forget some of the head scratching it brings on when you see it for the first time. Thanks for the feedback…will take it on board for future.

  • 8 Simon July 31, 2019, 7:54 am

    “I tapped the screen like it was a faulty watch..”
    Right.. enough of the goth 6th form poetry

    “Everybody hurts sometimes”
    Bingo…. Indie kid

    Great.. made me laugh

  • 9 MrOptimistic July 31, 2019, 8:43 am

    Perhaps another reason why not to check your portfolio too frequently 🙂 ?

  • 10 The Accumulator August 1, 2019, 1:35 pm

    @ MJ – I think the industry should work out how to communicate clearly without relying on savvy investors setting up alerts through third parties. Too many people don’t have that level of knowledge or interest. Lyxor could have put a banner at the top of the ETF web page that reassured their retail investors. Instead, it’s buried at the bottom and still not clearly labelled.

    @ Kevin – thanks for stopping by and taking an interest.

    @ MrOptimistic – bang on. See no evil.

  • 11 dawn August 4, 2019, 4:06 pm

    I had a similar gut wrenching moment recently when i invested into my first index linked guilt .
    as soon as id bought it through my broker , i checked my brokerage account to see a third had been wiped off the value instantly. what had gone wrong? i though this was a safe asset. i checked on LSE where i could see my transaction along with about 10 other investers who had bought the same guilt that very day so i thought well they in the same boat as me and one, had invested a £million !
    anyway after some research , apparently the value showing in my account has not been adjusted for inflation. this applies to any guilts bought after 2005

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