HSBC has created a Note with 3 times leverage and maximum profit capped at 10% with a maturity of 14 months. On the down side this note will participate 1 to 1 in down side performance.
After reviewing this note with the lens of our Quantitative metrics we think this is note is not for a conservative faint hearted investor. As this note exposes the investor to complete downside performance. One should be careful to invest in this kind of note.
I gotten interested to analyze this note for few reasons. Firstly, size of the note is 162 Millions. Considering the issuance sizes of various notes, this is note is of relatively large size. Looks like some big institutional client is need of this well crafted exposure to SPX over 14 month period. Alright, second reason for choosing this note is the return profile. This note provides 3 times leverage with return capped at 10%. This means, investor will benefit if SPX rises by 10% only. If SPX rises beyond 10% then note underperforms the underlying index. On the other hand,if SPX Index falls from the initial level investor is exposed to that down performance.
This kind of profile where return is capped with full down side exposure is a very common theme that we have been seeing. We have seen, notes created on single names and indices alike, issuers have created this leverage capped notes with down side exposure.
This type of note cannot be analyzed in isolation to understand the significance of its creation. Rather there are some specific hedging needs that needs to be understood to get the context of the note issuance.
This means not all structured notes are created same. Each one has a unique investment thesis and purpose. One has to understand them to appreciate the creation of the structured Note and before investing.
I gotten interested to analyze this note for few reasons. Firstly, size of the note is 162 Millions. Considering the issuance sizes of various notes, this is note is of relatively large size. Looks like some big institutional client is need of this well crafted exposure to SPX over 14 month period. Alright, second reason for choosing this note is the return profile. This note provides 3 times leverage with return capped at 10%. This means, investor will benefit if SPX rises by 10% only. If SPX rises beyond 10% then note underperforms the underlying index. On the other hand,if SPX Index falls from the initial level investor is exposed to that down performance.
This kind of profile where return is capped with full down side exposure is a very common theme that we have been seeing. We have seen, notes created on single names and indices alike, issuers have created this leverage capped notes with down side exposure.
This type of note cannot be analyzed in isolation to understand the significance of its creation. Rather there are some specific hedging needs that needs to be understood to get the context of the note issuance.
This means not all structured notes are created same. Each one has a unique investment thesis and purpose. One has to understand them to appreciate the creation of the structured Note and before investing.
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