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 [1].
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 [2] in my portfolio was bleeding red.
An 80% loss. In one day. WTF?
It’s a short duration [3] 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 [4] – AJ Bell. God. It showed the same thing. 80% down. The share price just fell off a cliff.
[5]
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?
[6]
At the bottom of GIL5’s web page [7] – beyond the Passporting Information twilight zone – sits a Corporate News & Events link. There I saw a Notice To The Shareholders [8]. 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 [9]split [9].
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 [10] 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 [11] 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 [12] that can happen is like nothing I’ve ever experienced.
Which is the reason [3] I have those boring short-duration bonds in my portfolio, of course…
Take it steady,
The Accumulator
- July 26 2019 in case you’re reading this in 2031 or whenever. [↩ [17]]