JPMorgan launches asset-allocation notes; structure's resilience suggests healthy demand, distributor says

By Kenneth Lim

Boston, June 2 - JPMorgan Chase & Co.'s asset-allocation notes have probably done reasonably well for the bank to launch two of those products on Monday just days after pricing similar notes, a distributor said.

"Usually when you see the same kind of structure with the same kind of underlying assets month after month, it means that there are enough people out there who like it enough to keep it going," the distributor said.

JPMorgan plans asset allocation notes

JPMorgan said it plans to price a series of zero-coupon principal protected asset-allocation notes due June 28, 2013 linked to the best performing of three reference portfolios.

At maturity, each note will pay par of $1,000 plus at least 100% of the return of the best performing portfolio. The participation rate will be set at pricing. If none of the portfolios finish higher than its initial level, investors will receive par.

Each portfolio has a different weighting of currency, commodities, equity and debt baskets.

The "conservative" portfolio allocates a 15% weight to currency, 10% to commodities, 25% to equity and 50% to debt. The "balanced" portfolio is made up of a 10% weight in currency, 15% in commodities, 40% in equity and 35% in debt. The "growth" portfolio assigns a 5% weight to currency, 20% to commodities, 60% to equity and 15% to debt.

The currency basket consists of equal weights of the British pound, the euro and the Japanese yen, all against the U.S. dollar.

The commodity basket follows the Dow Jones-AIG Commodities index.

The equity basket comprises equal weights of the S&P 500 index, the Dow Jones Euro Stoxx 50 index, and the Nikkei 225 index.

The debt basket tracks the JPMorgan GBI Global Bond Total Return Index hedged in U.S. dollars.

JPMorgan also announced a series of notes using the same structure. The second series matures on June 30, 2014. All other aspects of the structure are the same.

"The notes are designed for investors who seek exposure to four asset classes (equity, debt, commodities and currencies) through three reference portfolios that contain different weightings of exposure to those asset classes," JPMorgan said in its prospectus. "Investors must be willing to forgo interest payments while seeking full principal protection at maturity."

"The respective performance of the four asset classes may not be correlated and, accordingly, your investment in the notes may only yield a positive return if there occurs a broad based rise in equities, commodities and government bonds as well as a rise in the pound, euro and yen relative to the U.S. dollar," the bank added.

Structure doing well

JPMorgan priced similar notes a week ago. The bank said it sold $7.32 million of the notes due May 31, 2013 and $4.71 million of the notes due May 30, 2014.

The underlying assets and payout structure of the two earlier notes are the same as the latest ones to be offered.

The JPMorgan structure appears to be doing reasonably well, the distributor said.

"A lot of new products are created when clients ask the issuers to help them create a structure to realize a particular strategy," the distributor said. "Sometimes the issuers will also come up with some structures or link to a new underlying on their own or with collaborators. In all instances, issuers may only have a very slight suspicion of how much interest there is in the market for a particular product at the start. So if you see something being offered a second time, that's a positive."

The distributor added that a product that generates enough demand to be offered again is an important accomplishment for any issuer.

"A product that's good enough to offer repeatedly is, I don't want to say it's a home run, but it's definitely a good thing to have, because after the first time you can reuse the prospectus and save on education and marketing, and you start to make back all the costs you incurred in creating this new product from scratch," the distributor said. "Structured products aren't cheap to produce."

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