Institutional Structured Products
description
Transcript of Institutional Structured Products
Institutional Structured ProductsMay 2013
Agenda
Catley Lakeman Securities
Institutional Structured Investments Composition
Institutional Structured Investments Examples – Accelerators / Supertrackers
Institutional Structured Investments Examples – Range Accruals
Institutional Structured Investments Examples – Defensive Autocalls
Why Use Structured Investments?
Appendix
2
CATLEY LAKEMAN SECURITIES
3
Catley Lakeman Securities
Founded July 2008 Team of 9 Combined investment sales experience – 42 years Combined structured investment trading experience – 34 years Combined structured investment specific experience – 54 years
STUART CHANDLER
Non-Executive Chairman
RUSSELL CATLEY(Partner)
ANDREW LAKEMAN(Partner) NINA GILL
Sales Sales Sales & Research
T 020 7043 0101M 07977 917 238
T 020 7043 0102M 07812 527 172
T 020 7043 0104M 07974 990 280
TOM MAY(Partner) CHRIS DAGG JONATHAN DAGG
Trading & Structuring Trading & Structuring Trading & Research
T 020 7043 0103M 07876 716 067
T 020 7043 0105M 07841 332 701
T 020 7043 0505M 07921 003 583
4
EDWARD SENIOR
Delta 1
T 020 3397 3156M 07971 958 585
FSA authorised securities and futures firm
Outsourced origination and distribution business, representing seven banks on a contractual basis
Sell and support (ie in both the primary and secondary markets) private placement securitised derivative investments to professional asset managers and institutions in the UK
5
Catley Lakeman Securities
Source: Bloomberg, data as at 01-May13
Royal
Bank o
f Can
ada
HSBC
JP M
organ
UBS
Rabob
ank
Credit S
uisse
Deutsc
he Ban
k
Citigrou
pBoA
Goldman
Barclay
sIN
G
Morgan
Stanley BNP
Lloyd
s TSB
Nomura RBS
Commerz
bank
Credit A
grico
le
Soc G
en
Banco
Santan
der
0
100
200
300
400
500
600
700
Credit Spreads since June-2008 - Trading Ranges
Cre
dit D
efau
lt Sw
ap (C
DS)
leve
ls [b
asis
poi
nts
over
LIB
OR
per
ann
um]
high
low
maximum 1360
current
INSTITUTIONAL STRUCTURED INVESTMENT COMPOSITION
6
A structured product is a defined-return investment based on the performance of an underlying asset
Factors to determine at the outset:
o Underlying asset – equity indices, commodities, interest rates, etc
o Payoff – depends on your investment view, the risk/ return profile, income vs growth
o Counterparty – mark-to-market considerations, diversification of issuers
WHAT ARE STRUCTURED PRODUCTS?
7
How is a Structured Investment put together?
Indication of AA- rated issuer 5 year Capital Protected Participation Note today
STRUCTURED INVESTMENT COMPOSITIONHard Protection
8
Share Price at Issue 100.00p
ZCB / Swap inc. funding pickup 91.79p
Aggregate Costs 1.49p
Amount to invest 6.72p
Price of 1 call option at today 9.70p
Therefore with 6.72p, investor can buy 0.69x call options/ 69% participation.
GBP1.00Zero-
couponBond/Swap
Option packageProvidingEconomic
Return
GBP1.00Investor’s
Cash
How is a Structured Investment put together?
Indication of AA- rated issuer 6 year Accelerator Participation Note (protection at 60%) today
STRUCTURED INVESTMENT COMPOSITIONSoft Protection
9
Share Price at Issue 100.00p
ZCB / Swap 89.10p
Aggregate Costs 1.49p
[Sell put risk premium -17.96p][Amount to invest 27.37p]
Price of 1 call option at today 10.64p
Therefore with 27.37p, investor can buy 2.58x call options/ 258% participation.
Option packageProvidingEconomic
Return
Sell 6yr European
Put Option on the FTSE Risk At 60%
Strike (‘Knock-In
Put’)
GBP1.00Zero-
couponBond/Swap
GBP1.00Investor’
sCash
GBP1.00Zero-
couponBond/Swap
Option packageProvidingEconomic
Return
INSTITUTIONAL STRUCTURED INVESTMENT EXAMPLES
1. Accelerators / Supertrackers
2. Range Accruals
3. Defensive Autocalls
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EXAMPLES OF STRUCTURED INVESTMENTS
11
USE TYPE EXAMPLE SITS ALONGSIDE
Gearing / Participation Uncapped Accelerator / Supertracker Large cap / core long only funds and ETFs
Synthetics Range Accrual ZDPs
Autocalls Defensive Autocall Equity income finds and absolute return funds
Yield Enhancement
Defined Return
Selling Volatilty
INSTITUTIONAL STRUCTURED INVESTMENT EXAMPLES
1. Accelerators / Supertrackers
2. Range Accruals
3. Defensive Autocalls
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Acclerators / Supertrackers
13
USE TYPE EXAMPLE SITS ALONGSIDE
Gearing / Participation Uncapped Accelerator / Supertracker Large cap / core long only funds and ETFs
• Seen by many as a cost-effective ETF replacement
• Given 90% of respondents to the 2012 questionnaire were bullish, it is likely we will
see more of these structures over the next year
• Not usually held for more than 1 to 2 years
Construction
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• HSBC 5.5 year Fixed Rate Bond
• Yielding roughly 3.3% per annum at time of issue
• Remove coupons
• Present Value of coupon stream over 5.5 years: 17p
• Left with an HSBC zero coupon bond worth 83p
• Incorporate ‘soft protection’
• 60% soft protection on S&P 500 at maturity
• Sell knock-in put: 12.5p
• Incorporate upside
• 100 – 83 + 12.5 = 29.5p to spend
• 1 S&P call option is 16.5p; 29.5 / 16.5 = 1.79 call options
HSBC 5.5 year Fixed Rate Bond
Remove Coupons
Incorporate ‘soft protection’
Incorporate upside
All data as at time of issuance (Feb-11)
Eg: HSBC 340 US Supertracker (179%)
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HSBC 340 US Supertracker (179%)
Strike: 16-Feb-11
Counterparty: HSBC
Currency: USD Denominated
Underlying: S&P 500 (1336.32 points)
Maximum Term: 6 years
Platform: EIS (subject to CGT under current tax rules)
Upside: 179% participation (final year averaging)
Downside (60% European Knock-In Put):
if at maturity the S&P has fallen by more than 40% of the initial level (below 801.79 points) at maturity, the structure will redeem paying the original capital minus 1% for every 1% the Index has fallen below the initial level
Mark-to-Market
16Source: Bloomberg, data to 1-May-13
Feb-11 May-11 Sep-11 Dec-11 Mar-12 Jun-12 Oct-12 Jan-13 Apr-1375%
85%
95%
105%
115%
125%
135%
S&P 500 Index Performance [Price]
US Supertracker Performance
Total return of index = 123.04% (dividend reinvestment assuming Net of Corporate Tax rate 20%)
Structure performance to date: 27.25%
S&P TR performance to date: 23.04%
Structure annualised volatility: 21.31%
S&P annualised volatility: 18.67%
Performance
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• Since launch performance: 29.35% versus 18.20% sector average in the below list of funds
Source: Bloomberg, Financial Express, data to 1-May-13
USD Denominated Performance (TR) Bloomberg Ticker 1 month(2-Apr-13)
3 month(30-Jan-13)
1 year(27-Apr-12)
Since Launch (16-Feb-11)
HSBC US Supertracker Series 2 / 3 / 4 B3Z2023 3.45% 12.56% 22.49% 29.35%
HSBC 476 US Supertracker Series 5 B92SVS9 2.73% N / A N / A N / A
UBS US Equity Investment Funds UBSUEAA LN 2.67% 5.44% 11.92% 14.96%
JPM US Equity Income HLIEX US Equity 2.34% 7.59% 17.14% 32.80%
S&P 500 SPX 1.84% 6.82% 15.93% 24.21%
ISHARES S&P 500 SACC LN 1.79% 6.62% 15.85% 23.72%
Schroder QEP US Core Fund SCHRAMA LN Equity 1.16% 4.64% 13.53% 21.55%
Legg Mason Funds US Equity LMUSEAA LN 1.06% 3.20% 11.58% 9.41%
JPMorgan American Investment Trust JAM LN 1.05% 5.15% 12.04% 17.08%
Findlay Park American Fund FINDLPI ID 0.51% 4.86% 17.80% 22.87%
Neptune Investment Funds US Opps CFNUSAA LN 0.31% 2.33% 10.24% 8.19%
M&G Investment Funds American MGAMDAA LN -0.03% 2.83% 13.01% 11.78%
Threadneedle Investment Funds American Select TDNASGA LN -0.20% 1.64% 7.91% 18.47%
Brown Advisory US Equity Growth Fund BRAUSEB ID -1.53% 2.19% 5.27% 13.38%
Source: Bloomberg,
Financial Express, data to 2-May-2013
INSTITUTIONAL STRUCTURED INVESTMENT EXAMPLES
1. Accelerators / Supertrackers
2. Range Accruals
3. Defensive Autocalls
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Range Accruals
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• The other success story over the last year, beyond autocalls
• With the backdrop of falling rates, falling vol and tightening credit, in most cases
these structures have outperformed the market
USE TYPE EXAMPLE SITS ALONGSIDE
Yield Enhancement Defined Return Selling Volatilty
Synthetics Range Accrual ZDPs
RESULTING STRUCTUREMANAGER CONSIDERATIONS & DECISIONSHOW TO GET HIGHER YIELD
Yield : circa 3.00%
Construction (‘Synthetics’)
This slide shows the evolution of a live trade.
HSBC 6y Fixed Rate Bond
*All pricing as at circa early Oct-12
Yield : circa 5.00%
Yield : circa 6.85%
Yield : circa 7.00%
Put capital risk
Put coupon at risk (via lower barrier)
Put coupon at risk (add upper barrier)
Which underlying should the structure be linked to? FTSE
At what level should the lower barrier be?Coupon paid annually as long as the FTSE is over 3500 points.
To what extent is the manager prepared to put capital at risk?Soft protection at maturity at 3500 points.
At what level should the upper barrier be?7% annual, accrued daily for every day the FTSE closes within the range of 3500 to 7500 points.
Any additional considerations?In this instance the investors wanted semi-annual income, so the structure pas up to 3.5% semi-annually.
HSBC 6y FTSE Reverse Convertible
HSBC 6y FTSE Digital
HSBC 440 6y FTSE Range Accrual
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HSBC 6y FTSE Reverse Convertible (5.00%)
21*All pricing as at circa early Nov-12
3000
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
8500
+0 years +1 year +2 years +3 years +4 years +5 years +6 years
FTSE
100
Strike : 5800 points
5.0% coupon paid regardless of what the FTSE has done
5.0% coupon paid regardless of what the
FTSE has done
5.0% coupon paid regardless of what the FTSE has done
5.0% coupon paid regardless of whatthe FTSE has done
5.0% coupon paid regardless of what the FTSE has done
5.0% coupon paid regardless of what the FTSE has done
0%
2%
4%
6%
8%
+0 years +1 year +2 years +3 years +4 years +5 years +6 years
Cou
pon
Paym
ents
Soft Protection at Maturity: 3500 points
Coupon: 5.0%
HSBC Bond Coupon: 3.0%
HSBC 6y FTSE Digital (6.85%)
22*All pricing as at circa early Nov-12
3000
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
8500
+0 years +1 year +2 years +3 years +4 years +5 years +6 years
FTSE
100
Strike: 5800 points
6.85% coupon paid as FTSE is above the
lower barrier at the end of the year
6.85% coupon paid as FTSE is above the
lower barrier at the end of the year
no coupon paid as FTSE has fallen
below the lower barrier at the end of the year
6.85% coupon paid as FTSE is above the
lower barrier at the end of the year
6.85% coupon paid as FTSE is above the
lower barrier at the end of the year
6.85% coupon paid as FTSE is above the
lower barrier at the end of the year
0%
2%
4%
6%
8%
+0 years +1 year +2 years +3 years +4 years +5 years +6 years
Cou
pon
Paym
ents
Lower Barrier: 3500 points
Soft Protection at Maturity: 3500 points
Potential Coupon: 6.85%
HSBC Bond Coupon: 3.0%
HSBC 440 FTSE Daily Range Accrual (7.0%)
23*All pricing as at circa early Nov-12
3000
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
8500
+0 years +1 year +2 years +3 years +4 years +5 years +6 years
FTSE
100
Upper Barrier: 7500 points
Strike : 5800 points
7% coupon paid as FTSE stayed
between barriers for whole year
1.75% coupon paid as FTSE exceeded theupper barrier for 75% of
the year
3% coupon paid as FTSE fell below the lower barrier for 50% of
the year
2.3% coupon paid as FTSE fell below thelower barrier for 33% of
the year
7% coupon paid as S&P 500 stayed
between barriers for whole year
7% coupon paid as FTSE stayed
between barriers for whole year
0%
2%
4%
6%
8%
+0 years +1 year +2 years +3 years +4 years +5 years +6 years
Cou
pon
Paym
ents
Lower Barrier: 3500 points
Soft Protection at Maturity: 3500 points
Potential Coupon: 7%
HSBC Bond Coupon: 3.0%
24Source: Data as at 29-Jan-13
Eg: HSBC 363 FTSE Daily Range Accrual (8.0%)
HSBC 363 FTSE Daily Range Accrual (8.0%)
Strike: 9-Jan-11
Counterparty: HSBC
Currency: GBP Denominated
Underlying: FTSE 100 (5460.38 points)
Maximum Term: 6 years
Platform: EIS (subject to CGT under current tax rules)
Upside:8% annual coupon accrued daily, for every day the FTSE closes between 55% and 150% of the initial level ( 3003.21 to 8190.57 points)
Downside (55% European Knock-In Put):
if at maturity the FTSE has fallen by more than 45% of the initial level (below 3003.21 points) , the structure will redeem paying the original capital minus 1% for every 1% the Index has fallen below the initial level
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Mark-to-Market
Source: Bloomberg, data as at 01-May-13
Nov-11 Feb-12 Jun-12 Sep-12 Dec-12 Apr-1375.00%
85.00%
95.00%
105.00%
115.00%
125.00%
135.00%
FTSE 100 Index Performance [Price]
HSBC 363 Performance
Total return of index = 124.28% (dividend reinvestment assuming Net of Corporate Tax rate 20%)
Structure performance to date: 24.89%
FTSE TR performance to date: 24.28%
Structure annualised volatility: 5.84%
FTSE 100 annualised volatility: 14.32%
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CS 425 FTSE Quarterly Range Income
Credit Suisse 425 FTE Quarterly Range Income (2.25%) Note
Strike: 13-Sep-12
Counterparty: Credit Suisse
Currency: GBP Denominated
Underlying: FTSE 100 (5819 points)
Maximum Term: 6 years
Platform: Note (subject to income tax under current tax rules)
Upside: 2.25% quarterly coupon paid out quarterly, so long as the FTSE remains between 3500 and 7500 points for the entire quarter.
Downside (3500 points European Knock-In Put):
if at maturity the FTSE has fallen below 3500 points at maturity, the structure will redeem paying the original capital minus 1% for every 1% the Index has fallen below the initial level
INSTITUTIONAL STRUCTURED INVESTMENT EXAMPLES
1. Accelerators / Supertrackers
2. Range Accruals
3. Defensive Autocalls
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Defensive Autocalls
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• Performance of Defensive Autocallables is predictable and defined
• Bull market: Underperform
• Bear market: Likely to outperform
• “Flattish” market: Outperform significantly
• Autocall Backtest Analysis – illustrating where outperformance tends to occur
USE TYPE EXAMPLE SITS ALONGSIDE
Yield Enhancement Defined Return Selling Volatilty
Autocalls Defensive Autocall Equity income finds and absolute return funds
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Payoff Example
Level of Index 1st anniversary 2nd anniversary 3rd anniversary 4th anniversary 5th anniversary
100%
60%
0%
6th anniversary
Autocall observation coupon of 32%
Autocall observation coupon of 40%
Autocall observation coupon of 48%
Autocall observation coupon of 24%
Autocall continues to 2nd anniversary
Autocall continues to 3rd anniversary
Autocall continues to 4th anniversary
Autocall continues to 5th anniversary
Autocall continues to 6th anniversary
Capital protection barrier triggered
Capi
tal P
rote
cted
Capi
tal L
oss
Autocall observation coupon of 16%
Autocall observation coupon of 8%
100%95%
90%85%
80% 75%
Autocall redeems at 100p
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Eg: HSBC 260 FTSE Defensive Autocall (10%)
HSBC 260 FTSE Defensive Autocall (10%) EIS
Strike: 7-Oct-10Counterparty: HSBC Currency: GBP DenominatedUnderlying: FTSE 100 (5662.13 points) Maximum Term: 6 years Platform: EIS (subject to CGT under current tax rules)Upside: Defensive autocall, 10% snowballing annual coupon
Autocall Barriers:
Year 1: 100% barrier 110% payoffYear 2: 100% barrier 120% payoffYear 3: 100% barrier 130% payoffYear 4: 95% barrier 140% payoffYear 5: 90% barrier 150% payoffYear 6: 85% barrier 160% payoff
Downside (50% American Knock-In Put):
should the structure not autocall on any of the 6 anniversaries, and the FTSE has fallen by more than 50% at any close over the life, the structure will redeem paying the original capital minus 1% for every 1% the Index had fallen below strike level
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Payoff
Unless the capital protection has previously been breached
Level of FTSE 1st anniversary 2nd anniversary 3rd anniversary 4th anniversary 5th anniversary
100%
50%
0%
6th anniversary
100%
Autocall observation coupon of 40%
Autocall observation coupon of 50%
Autocall observation coupon of 60%
Autocall observation coupon of 30%
Autocall continues to 2nd anniversary
Autocall continues to 3rd anniversary
Autocall continues to 4th anniversary
Autocall continues to 5th anniversary
Autocall continues to 6th anniversary
Capital protection barrier triggered
Capi
tal P
rote
cted
Capi
tal L
oss
Autocall observation coupon of 20%
Autocall observation coupon of 10%
100% 100% 100%95%
90%85%
Autocall redeems at 100p*
Autocall continues to 2nd anniversary
Capital protection barrier
Autocall continues to 3rdanniversary
Capital protection barrier
Autocall continues to 4th anniversary
Capital protection barrier
Autocall continues to 5th anniversary
Capital protection barrier
Autocall continues to 6th anniversary
Capital protection barrier
32
Oct-10 Feb-11 May-11 Aug-11 Dec-11 Mar-12 Jun-12 Sep-12
-15
-10
-5
0
5
10
15
20
25FTSE 100 Total ReturnHSBC 260 FTSE Defensive
Annualised Volatility over the life of the trade: HSBC 260: 14.51% FTSE 100: 19.93%
Outperformance over the Underlying: 9.77%
Total return of index = +10.23% (dividend reinvestment assuming Net of Corporate Tax rate 20%)
Mark-to-Market
Structure outperformance to date: 9.77%
Structure annualised volatility: 14.51%
FTSE 100 annualised volatility: 19.93%
Source: A selection of popular UK funds, all rated AAA/AA by Citywire 33
• Called in Year 2 (8th October 2012), with the FTSE at 5841.74 points
• Over the two years since launch, the structure doubled the return of the market with less volatility
Period Range: 7-Oct-10 to 8-Oct-12
Total Return Performance 360 Day Volatility
Structure (HSBC 260 Def Ac) 20.00% 14.51%
BlackRock UK Special Situations 16.70% 19.92%
Threadneedle UK Equity Income 15.79% 17.49%
Underlying (FTSE 100) 10.23% 19.93%
M&G Recovery 11.14% 22.56%
Standard Life Investment GARS 7.62% 4.72%
Jupiter Absolute Return 4.51% 5.51%
Performance
WHY USE INSTITUTIONAL STRUCTURED INVESTMENTS?
34
Why use Structured Investments in a portfolio?
o They can be tailored to an investors’ specific requirements
o They offer an investor access to a wide variety of underlyings (equities, indices, interest rates, inflation, commodities etc)
o They can be structured via a variety of different outcomes at maturity, that are generally very simple to understand
o They tend to do ‘exactly what it says on the tin’- both the returns and the risks are easily definable
o As are the costs
o They should be used as an active investment, which is facilitated by a liquid secondary market (they have proved to be almost the most liquid asset you can hold) that CLS services
Why Use Institutional Structured Investments?
35
36
APPENDIX
TYPES OF STRUCTURED INVESTMENTS
CAPPED
UNCAPPED
ACCESS TO A PARTICULAR UNDERLYING
PARTICIPATION
SELLING VOLATILITY
DEFINED RETURN
YIELD ENHANCEMENT
AUTOCALLS
SYNTHETICS
INCOME Sit alongside: Income funds
Sit alongside: ZDPs
Sit alongside: Equity income funds and absolute return funds
Sit alongside: Large cap / core long only funds and ETFs
Sit alongside: Other vehicles accessing the same underlying asset
AcceleratorsSupertrackers Call Spreads
Usually participation in the form of an Accelerator, (but not always)
Autocalls Defensive Autocalls Worst-Of Autocalls
Synthetic ZerosDigitalsRange TradesRange Accruals
Reverse Convertibles DigitalsRange Trades High Income Range AccrualsInflation Plus
37
Defensive Autocall terms HSBC 6 year maximum term GBP denominated FTSE underlying 8% annual snowballing coupon 5% falling barriers
(100/ 95/ 90/ 85/ 80/ 75 as a percentage of strike)
Soft protection at 60% at maturity(European Knock-In Put)
TWO COMMON PAYOFFSDefensive Autocall
38
Alternatives for higher yield Move autocall barriers Move soft protection level Different Counterparty Flat Autocalls Worst- Ofs Phoenix
Start Date: Investor invests 100p
Start Date + 1 year: Is FTSE above 100% Structure terminates andof Start Level? pays back 108p
Start Date + 2 years: Is FTSE above 95% Structure terminates andof Start Level? pays back 116p
Start Date + 3 years: Is FTSE above 90% Structure terminates and of Start Level? pays back 124p
Start Date + 4 years: Is FTSE above 85% Structure terminates andof Start Level? pays back 132p
Start Date + 5 years: Is FTSE above 80% Structure terminates and of Start Level? pays back 140p
Start Date + 6 years: Is FTSE above 75% Structure terminates and of Start Level? pays back 148p
Is FTSE above 60% Structure terminates andof Start Level? pays back 100p
Structure terminates and investor loses 1% for every 1% the FTSE has fallen from start to end date
YES
YES
YES
YES
YES
YES
YES
NO
NO
NO
NO
NO
NO
NO
Range Trade terms HSBC 6 year term GBP denominated FTSE underlying 8.5% paid out coupon Range: 3500-7500 points, annually observed Soft protection at 3500 (60%)
at maturity(European Knock-In Put)
TWO COMMON PAYOFFSRange Trade
39
Alternatives for higher yield Narrower range Move soft protection level Different Counterparty
Less yield Memory feature Range Accrual
Start Date: Investor invests 100p
Start Date + 1 year: Is FTSE between Investor receives 8.5p coupon 3500 and 7500? Investor receives no coupon
Start Date + 2 years: Is FTSE between Investor receives 8.5p coupon 3500 and 7500? Investor receives no coupon
Start Date + 3 years: Is FTSE between Investor receives 8.5p coupon 3500 and 7500? Investor receives no coupon
Start Date + 4 years: Is FTSE between Investor receives 8.5p coupon 3500 and 7500? Investor receives no coupon
Start Date + 5 years: Is FTSE between Investor receives 8.5p coupon 3500 and 7500? Investor receives no coupon
Start Date + 6 years: Is FTSE between Investor receives 8.5p coupon 3500 and 7500? Investor receives no coupon
Is FTSE above Structure terminates and pays 3500 (60%)? 100p
Structure terminates and investor loses 1% for every 1% the FTSE has fallen from start to end date
YES
NO
YES
NO
YES
NO
YES
NO
YES
NO
YES
NO
YES
NO
40
Why don’t you see many capital protected structures today?But first, let’s look back to the good old days of 2005…Estimation of 170% Barclays 5 year FTSE Accelerator Bond (Traded 1-March-2005).
* We think this matured at 117p.
Share Price at Issue 100.00p
ZCB / Swap inc. funding pickup 74.61p
Aggregate Costs 1.49p
Amount to invest 23.9p
Price of 1 call option at launch 14.06p
Therefore with 23.9p, investor can buy 1.7x call options/ 170% participation.
GBP1.00Zero-
couponBond/Swap
Option packageProvidingEconomic
Return
GBP1.00Investor’s
Cash
41
How this new issue prices today.Indication of AA- rated issuer Capital Protected Participation Note today
* This answers the question posed ‘Why don’t you see many capital protected structures today?’
Share Price at Issue 100.00p
ZCB / Swap inc. funding pickup 91.79p
Aggregate Costs 1.49p
Amount to invest 6.72p
Price of 1 call option at today 9.70p
Therefore with 6.72p, investor can buy 0.69x call options/ 69% participation.
GBP1.00Zero-
couponBond/Swap
Option packageProvidingEconomic
Return
GBP1.00Investor’s
Cash
42
So what does look good today assuming that you are looking for market linked upside?Indication of AA- rated issuer 5 year Accelerator Participation Note (protection at 60%) today
* Depending on the market, we feel these accelerators (supertrackers) are a good alternative to passive or quasi-passive long only funds.
Share Price at Issue 100.00p
ZCB / Swap 91.79p
Aggregate Costs 1.49p
Old amount to invest 6.72p
[Sell put risk premium -14.93p][New Amount to invest 21.65p]
Price of 1 call option at today 9.70p
Therefore with 21.65p, investor can buy 2.23x call options/ 223% participation.
Option packageProvidingEconomic
Return
Sell 5yr European
Put Option on the FTSE Risk At 60%
Strike (‘Knock-In Put’)
GBP1.00Zero-
couponBond/Swap
GBP1.00Investor’s
Cash
GBP1.00Zero-
couponBond/Swap
Option packageProvidingEconomic
Return
43
Let’s look back to see how this would have priced in 2005.Estimation of 5yr FTSE Accelerator Participation with Soft Capital Protection at 60% of initial level (Trade date 1-
March-2005)
* Depending on the market, we feel these accelerators (supertrackers) are a good alternative to passive or quasi-passive long only funds.
Share Price at Issue 100.00p
ZCB / Swap 73.79p
Aggregate Costs 1.49p
Old amount to invest 24.72p
[Sell put risk premium -4.04p][New Amount to invest 28.76p]
Price of 1 call option at March 2005 14.06p
Therefore with 28.76p, investor can buy 2.05x call options/ 205% participation
Option packageProvidingEconomic
Return
Sell 5yr European
Put Option on the FTSE Risk At 60%
Strike (‘Knock-In
Put’)
GBP1.00
Zero-couponBond/Swap
GBP1.00
Investor’s
Cash
GBP1.00
Zero-couponBond/Swap
Option packageProvidingEconomic
Return
44
Indication of AA- rated issuer 6 year Accelerator Participation Note (protection at 60%) today
Share Price at Issue 100.00p
ZCB / Swap 89.10p
Aggregate Costs 1.49p
[Sell put risk premium -17.96p][Amount to invest 27.37p]
Price of 1 call option at today 10.64p
Therefore with 27.37p, investor can buy 2.58x call options/ 258% participation.
Option packageProvidingEconomic
Return
Sell 6yr European
Put Option on the FTSE Risk At 60%
Strike (‘Knock-In Put’)
GBP1.00Zero-
couponBond/Swap
GBP1.00Investor’s
Cash
GBP1.00Zero-
couponBond/Swap
Option packageProvidingEconomic
Return
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DISCLAIMER
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