CIBC’s two-year Capped Leveraged Index Return Notes linked to Euro Stoxx 50 seen as attractive

By Emma Trincal

New York, Dec. 3 – Canadian Imperial Bank of Commerce’s 0% Capped Leveraged Index Return Notes due December 2017 linked to the Euro Stoxx 50 index have an interesting profile, advisers said. Several of the structure’s features – a 10% annualized cap, a real buffer and upside leverage – are not often seen all combined in a short-dated product.

The payout at maturity will be par of $10 plus double any index gain, up to a maximum return that is expected to be 19% to 23% and will be set at pricing, according to a 424B2 filing with the Securities and Exchange Commission.

Investors will receive par if the index falls by up to 10% and will lose 1% for every 1% decline beyond 10%.

‘Unbelievable’

“It’s unbelievable. It almost looks like they mispriced it,” said Steve Doucette, financial adviser at Proctor Financial.

“On a two-year note, you have a 10% straight buffer, so if the market is down you’re going to outperform on the downside.

“And then there’s leverage on the upside ... two times with a cap of roughly 10% a year at mid-range.

“It could be really useful in the market we’re in. After the August correction, we’re now in an environment where the markets have reattained their highs. There’s been a lot of research indicating that potential returns are not going to be very exciting looking forward. With current valuations, some see the market performance in the 5% to 7% range next year and even less for some asset classes.”

Outperformance

“In this context, it’s a pretty attractive note. Market is up, I’m going to outperform. If I get 10% a year, I’ll be happy. If it’s down, I’m doing better than the index with the buffer,” he said.

While investors in the notes do sacrifice the high dividend yield of 3.25% paid by the Euro Stoxx 50 over the two years, the trade-off is still beneficial to investors, he said.

“Even without the 6.5% two-year dividend yield, you’re still ahead on the downside. And for the upside, the leverage is likely to make up for the lack of dividend.”

Two-year term

Matt Medeiros, president and chief executive of the Institute for Wealth Management, said he likes the underlying and the short maturity.

“It’s a very interesting note. I like the Euro Stoxx over the next couple of years,” he said.

“The European monetary system is attempting to create more growth opportunities for stocks.

“The fact that there’s leverage on the upside gives you the potential for return enhancement if the underlying shows modest growth.

“There could be more volatility in the European equity markets, so the 10% buffer for such a short-term note is very attractive.

“If you want exposure to the index but are apprehensive about using long-term notes, you can buy a component of your allocation in a short-term note like this one and another in an ETF.”

BofA Merrill Lynch is the agent.

The notes will price and settle in December.

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