CIBC’s notes linked to Euro Stoxx 50 offer ‘high’ cap, but advisers focus on term, downside

By Emma Trincal

New York, Oct. 3 – Canadian Imperial Bank of Commerce’s 0% capped Leveraged Index Return Notes due September 2019 linked to the Euro Stoxx 50 index offer several benefits: a short tenor with a relatively “high” upside potential combined with a buffer on the downside.

But as the bull market is expected to end sooner rather than later, some advisers take a more cautious stance on the downside, opting for either more protection or a longer time horizon.

The payout at maturity will be par of $10 plus double any index gain, subject to a maximum return of 20% to 24%, according to an FWP 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%.

No warm fuzzies

“When I see these really high 200%, 300% structured notes returns, I never get a warm and fuzzy feeling about it,” an adviser said.

“Maybe that’s because I’m in the Midwest. ... Maybe it’s because it usually comes with a low cap. Anything that has that kind of leverage raises my eyebrows.”

But this note offers an attractive return potential, he noted.

“It would be hard to complain about a 20% to 24% cap on a two-year.

“If you had a cap in the mid to upper teens, I would say, ‘don’t bother.’ But this one is really nice. It’s actually quite high.”

This adviser was more concerned about the protection amount.

“Don’t get me wrong. It’s a pure buffer, not a barrier. We like that. But if the market is down 30%, which is not likely but possible, ... it’s going to protect you somehow, but I don’t think my clients are going to pat me on the back.”

A solution to mitigate risk in his view would be to lengthen the duration of the notes. Over a longer period of time, a correction could be over soon enough to give the market time to recover, he reasoned.

“I’d rather have a four-year with a 20% buffer,” he said.

‘Simplicity is better’

Marc Gerstein, research consultant at Portfolio 123, said that even two years would be long-term for him.

“The two-year [tenor] is short term for a structured note, but of course it’s never going to be as liquid as the ETF,” he said.

“That said, there is a rationale. This is not as exotic as many of the notes I’ve seen in the past, and it’s a good thing. Simplicity is better.

“It serves a simple purpose: providing investors with international equity exposure. You have enhanced return with a little bit of protection. It’s only 10%, but if you’re comfortable with that type of risk-adjusted return, it could make sense for some investors. Not for retirees though, because two years in this market is a long time.”

BofA Merrill Lynch is the agent.

The notes will settle in October.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.