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Barrier Reverse Convertibles on Exchange Traded Funds

  • We expect volatility to remain elevated this year after it notably increased throughout 2018. Higher levels of volatility are often observed when the economy is in good shape, many businesses have increased gearing, and global USD liquidity is shrinking as monetary conditions tighten. Investors can opportunistically lock-in a volatility increase in assets via a yield enhancement product. This type of product tends to pay a higher coupon in a more volatile environment.
  • Under these circumstances, investors may want to consider our JB Callable Multi Barrier Reverse Convertibles on three Exchange Traded Funds (ETFs). The three ETFs provide exposure to companies listed in the United States from the three sectors for which we have an Overweight rating: industrials, energy and financials.
  • The products are aimed at investors who expect neutral/mildly positive performance of the three ETFs, but do not exclude that market corrections may occur.
  • The quarterly payable coupons are 9.75% p.a. (USD), 7.20% p.a. (EUR-hedged) or 6.60% p.a. (CHF-hedged).
  • The capital is protected at maturity, if there is no barrier event, which means that none of the three ETFs ever trade at or below their individual knock-in barrier at 60.00% during the lifetime of the product, or if all three ETFs are at or above their strike price at maturity.
  • However, if the barrier is breached during the lifetime of the product and one of the three ETFs is below its strike level at maturity, the investor receives at maturity an amount that takes into account the decrease of the underlying with the lowest performance relative to its strike price.
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