A comparison of two uncapped strategiesArticle added by Jason Kestler on August 11, 2014
Jason Kestler

Jason Kestler

Leesburg, VA

Joined: August 15, 2009

The Barclays Dynamic Balance Index (BXIIUDBI) is a proprietary index offered in the Allianz 360SM and Allianz 365SM index annuities. It has gained quite a bit of traction as an uncapped strategy offering potentially higher returns than a traditional capped product. As of this writing, the spread is 3.40 percent.

The Shiller Barclays CAPE US Sector Risk Controlled 10 percent USD Total Return Index (BXIIC10T) is a proprietary index offered by Athene Annuity and the Annexus Group. It is also an uncapped strategy with a current fee of 1.50 percent. At a high level, these seem to be very similar concepts. So, in order to get a better idea of the potential of each, I conducted two little experiments.

For for the first experiment, I went to the Barclays website and compared the historical performance for the Dynamic Balance Index and the Shiller Barclays CAPE US Sector Risk Controlled 10 percent USD Total Return Index. I took the historical one-, three- and five-year total returns for each index and applied the crediting formula for each carrier to each respective period.

This by no means is a scientific study, and multiple variables could affect the results at any time. One variable is the time frame. Each of these three time periods ended on July 3, 2014. The same exercise completed on any other day could result in completely different outcomes since these are rolling one-, three- and five-year periods. Another variable which did not affect this study but could affect results in the future is the difference between a fee and a spread. A fee is deducted every year, where a spread is deducted only to the extent there are earnings. Having said that, the calculations applied were based on the information believed to be accurate as of July 3, 2014.

Finally, these comparisons are only reflecting accumulation value. There is no consideration of income riders which may or may not be included. There is also no consideration of surrender charges at any point in time.

If we examine the one‐year comparisons in chart set 1, the Allianz return would be calculated as follows:
    10.94% ‐ 3.40%
The Shiller Index had a total return of 18.26 percent. The Athene/Annexus is currently a blend of 85 percent in this index and 15 percent in a fixed account at 1.00 percent, so our formula for the one‐year period would look like this:
    ((18.26% x 85%) + (1.00% x 15%)) – 1.50%
    (15.53% + 0.15%) – 1.50%
    15.68% ‐ 1.50%
If we move to the three-year period, the Allianz return would be calculated as follows:
    23.06% ‐ (3.40% x 3)
    23.06% ‐ 10.20%
The Aviva/Annexus return for the three-year period would be calculated:
    ((38.05% x 85%) + ((1.00% x 15%) x 3) – (1.50% x 3)
    (32.35% + 0.45%) – 4.50%
    32.80% ‐ 4.50%
The five‐year returns would go through a similar calculation.

It is interesting to note that the Shiller Index with a fee created returns nearly twice that of the US Dynamic Balance Index with a spread. In other words, a client who invested $100,000 in each of the products shown would have had $31,200 more accumulation value with the Athene/Annexus policy at the end of five years.
For the second experiment, I wanted to compare the formulas using the same index. To do this, I used the Barclay’s Dynamic Balanced Index for the one-, three- and five‐year periods and applied both the Allianz and the Athene/Annexus formulas to the three time frames. See chart set 2 below.

Although this doesn’t represent a specific product-to-product comparison, it illustrates the relative strength of each formula.

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