A structure note can be diversified in an infinite number of ways within a single package. One of the most common feature of Structured Notes is called the Autocall. It is a feature that allows the investment to automatically mature prior to their scheduled maturity date if the underlying asset(s) is at or higher than its initial level at any observation point.
How does it work, exactly?
Here’s an example of NEBA’s Autocallable Product link to Japan index, EuroStoxx 50 index, and Australia index with a maturity of 6 years. If all underlyings assets are equal or above its initial level at any observation date, the note matures, returning investors’ original capital in full together with any payable coupon. Frequency of observation dates can be annually, semi-annually, quarterly, monthly or even weekly! It all depends on what works best for the investor.
However, if these criteria are not met, the note continues until the next observation date and the same criteria are checked. This continues until either the note matures early, or it reaches the end of the investment term.
If the product’s reached the end of the investment term – usually between 5 or 6 years without being called – there are two possible outcomes: if the index is still above a protection barrier (usually between 50 and 70% of the initial level) the investor will receive their initial capital back. Or, if the markets have fallen so far that the index is below this barrier, the capital is reduced in line with the percentage fall.
Is this product right for you?
If investors have a moderate or positive market outlook to the extent that they believe the markets will rise in the short-term, a structured note with an Autocall feature is an option worth exploring, as they can mature on defined dates with defined gains in the event of flat markets or very moderate market rises.
Investing in Structured Products
Structured Notes (with or without an Autocall feature) definitely have a place in every portfolio. To get the best advice on what type of Structured Notes design would suit your portfolio best, please do not hesitate to contact your Financial Advisor.
If you are a Financial Advisor, feel free to contact us at NEBA Financial Solutions if you need more information. We eat and breathe Structured Notes and we’d always be happy to help!