Barclays’ dual directional trigger PLUS on Euro Stoxx 50 offer possible twin win

By Emma Trincal

New York, April 9 – Barclays Bank plc’s 0% dual directional trigger Performance Leveraged Upside Securities due Oct. 15, 2025 linked to the Euro Stoxx 50 index provide unlimited leveraged exposure to a lagging asset class, giving bulls unlimited upside while offering the more cautious investors absolute return and soft protection on the downside.

If the index finishes above its initial level, the payout at maturity will be par plus at least 130% of the gain, according to a 424B2 filing with the Securities and Exchange Commission.

The exact upside leverage factor will be set at pricing.

If the index finishes flat or falls by up to 35%, the payout will be par plus the absolute value of the index return.

Otherwise, investors will be fully exposed to any losses.

Laggard

Steve Doucette, financial adviser at Proctor Financial, said the performance of the Euro Stoxx 50 index has been disappointing for some time.

“We have the Euro Stoxx as an underlying. It hasn’t done much. In fact, it’s down 25% this year.”

The S&P 500 index after plunging into a bear market in February and March due to the coronavirus pandemic has recovered some of its losses and is now down 13.65% compared to a 24.25% decline for the Euro Stoxx 50 index.

“It has underperformed the U.S. markets, but if you believe in prices reverting to the mean, then it may be a good asset class to hold,” Doucette said.

But the leverage multiple of 1.35 was insufficient in his view.

“You should be able to get more,” he said.

Past deal

He pointed to a note he purchased in March 2017. The leverage factor was 2.65 and the term, 3.5 years.

But the underlying was the worst of the Euro Stoxx 50 index and the MSCI EAFE index and the upside was capped at 50%. The notes offered a 40% buffer with absolute return.

“I wouldn’t mind having a cap if I can get more leverage and if it’s a high cap like this one,” he said.

He would consider changing the downside structure but with caution.

“In this market, we don’t know where we’re going to be five years out. It’s worth having the downside protection.

“The notes we have matures in September and right now, the Euro Stoxx is down 25%. Another 15% we go beyond the buffer.

“You never know.”

Winning both ways

Dual directional notes – also known as absolute return – give investors a chance to win in both directions of the market.

“The index may come back in September. But it may not. In a way we’re hoping it may be down 40%. We would be up 40%. But it’s not really likely and you can’t bet on it,” he said.

Betting on the upside however, especially after a big drop in market prices, would make sense.

“We would certainly like to capture the upside. With the notes we bought, 10% up would give us 26.5%. Not bad,” he said.

Doucette said he needs to be able to express a more bullish view. For this reason, he would rule out using the Barclays notes.

“I’m not interested in the way it is put together. I’d restructure it to get more leverage maybe with a cap or maybe with less downside protection depending on the cap I’m being offered.

“It’s relatively easy to give up the absolute return. You still have the protection.”

Uncapped gains

Matt Medeiros, president and chief executive of the Institute for Wealth Management, found the notes attractive.

“I like the concept of getting exposure to this asset class through a note,” he said.

“I’m not concerned about the relatively long maturity. Five years or 5.5 years is fine with me.”

The structure was appealing on the upside.

“I like the fact that there is a little bit of leverage with no cap to it.

“This is something particularly attractive,” he said.

Term, absolute return

On the downside, Medeiros said he typically prefers to use buffers rather than barriers. But in this case, several factors made him comfortable with the soft protection.

“It’s more than five years. That makes a difference,” he said.

“I don’t have the numbers. But if I was to run the five-year rolling periods, I can’t imagine that the index could be down 35% or more in this timeframe. It’s unlikely.”

The barrier offered another advantage.

“This is not a simple barrier where you get your principal back.

“The absolute return characteristic makes it very attractive. You can make up to 35% on the downside.

“I like that a lot,” he said.

Barclays is the agent with Morgan Stanley Wealth Management as a dealer.

The notes will settle on April 16.

The Cusip number is 06747G430.

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