If you want to invest in the stock market without the slightest risk, one of the best products in this asset class is the Épargne Placements Québec (EPQ) equity market bond, a Québec Institution granted to the Treasury by ‘ Erich Girard.
Based on the performance of the Quebec 30 Index (IQ 30), which includes the 30 major companies listed on the Toronto Stock Exchange and headquartered in Quebec, these “exchange notes” are offered in two maturities, 5 years and 10 years .
It should be noted at the outset that the principal invested in these “Exchange Notes” is guaranteed and fully recoverable at maturity, regardless of whether the benchmark stock market index at maturity was expected to show a decline from the Effective Date of the issuance .
Increased maximum return
Épargne Placements Québec has decided to significantly increase the maximum yield that each of the two maturities can generate with the new ‘exchange notes’, which are currently on sale until March 15th.
The 5-year term could earn its holders up to a maximum return of 100%. That’s a potential annualized return of 15%.
For their part, the 5-year issues executed between June 2021 and December 2022 are capped at a maximum yield of 40% (7% annualized). Prior to June 2021, the yield on the 5-year term was capped at 60% (9.86% annualized).
As for the 10-year maturity of the “stock market bonds,” Épargne Placements Québec has raised the cap on the maximum yield to 400%, which translates to a potential annualized yield of around 17%.
Launched from June 2021 to December 2022, the 10-year issues offer a maximum return potential of just 100% (7.18% annualized).
Before June 2021, the potential yield of the 10-year term was unlimited, so there was no cap on yield.
Important note: Most financial products similar to “stock market bonds” offered by banking institutions, such as index savings deposits or GICs, which track returns based on stock market indices, are much less generous in terms of maximum return potential.
Historical achievement
The “stock exchange bonds” were launched in early 2001. Since then, Épargne Placements has completed 123 issues. Of these, 83 have expired and 40 are still active.
Of the 83 issues that have expired to date, none have completed their 5- or 10-year run in the red. They all recorded profits.
Of the around forty issues that are still active, 38 have achieved a positive return so far. And the two shows that are in the red, September 17, 2021 and March 2022, show only a slight decline for now.
The most recent maturing issuance of 10-year “exchange notes”, launched on December 20, 2012, brought its holders a total return of approximately 142%, or an annualized return of 9.26%.
Over nearly the same period (the 10-year period ended Dec. 31, 2022), the Toronto Stock Exchange’s barometer, the S&P/TSX, reported an annualized return of 7.7%, including dividends.
The performance of the most recently maturing 5-year issue on December 19, 2017 was far less stunning. Its total return has barely exceeded 24% over 5 years, for an annualized return of 4.47%.
This modest performance is due to the stock market correction in 2022.
However, for the same 5-year period ended December 31, the Toronto S&P/TSX posted an annualized return of 6.8%. Dividends clearly played in favor of the Toronto Index this time.
It should be noted here that the return on “stock exchange bonds” is strictly based on the performance of the IQ-30 index. Holders of these “exchange bonds” do not have access to the dividends paid by the companies that make up the Québec Index.
Québec 30 Index companies include BCE, CN, CGI, Couche-Tard, Power Corp, Royal Bank, Bank of Montreal, Bombardier, Quebecor, CAE, Dollarama, IA Financial Corporation, Laurentian Bank, BRP, Air Canada, Boralex, Saputo, subway etc.
