JPMorgan’s trigger absolute return notes tied to Euro Stoxx to help investors hedge their bets

By Emma Trincal

New York, Sept. 17 – JPMorgan Chase Financial Co. LLC’s 0% trigger absolute return step securities due Sept. 29, 2023 linked to the Euro Stoxx 50 index are designed for long-term investors who are unsure about the future direction of the European benchmark.

If the index finishes at or above its initial level, the payout at maturity will be par of $10 plus the return index up to a maximum return of 81% to 91%.

If the index falls by up to the 75% downside threshold level, the payout will be par plus the absolute value of the return.

Otherwise, investors will be fully exposed to any losses.

Mildly bullish

Carl Kunhardt, wealth advisor at Quest Capital Management, said he liked the upside potential as he is somewhat cautiously bullish on the euro zone equity market.

“You’re talking about 16% a year, which is a good return. In fact, we’re not even that bullish on Europe,” he said.

“They have a lot of problems they need to work on. So, the cap to me is a non-issue because I don’t see this index moving up that much.”

In addition, the underlying is a blue-chip index, which he does not expect to surge over the next five years.

International blue chip

“It’s not like emerging markets where you cross your fingers and hope for a 25% ...30%. This is blue chip developed markets,” he said.

His firm uses Mercer’s projected equity returns as a foundation for its estimates. For the next five years, the consulting firm projects an annualized return of 6.97% for international large-cap developed countries.

“I don’t like any cap. But this one is a reasonable cap given our expectations for this market and for equity in general,” he said.

Straightforward

Because of his moderately bullish view on the underlying, Kunhardt was not disappointed by the absence of leverage on the upside.

In general, he tends to shy away from leverage anyway.

“With structured notes, I always try to look at something straightforward and simple. Anytime you introduce leverage, you introduce other variables because this leverage is hedged out. The performance can be slightly different from what you’d expect on your notes.

“Looking at this note, there is nothing that would really turn me away from it,” he said.

Distraction

Scott Cramer, president of Cramer & Rauchegger, Inc., objected to the long maturity of the investment.

“I wouldn’t be excited about this,” he said.

“I don’t think there is enough downside protection with a 75% barrier.”

Rather than having absolute returns, Cramer would prefer increased or better protection.

“The absolute return is a sucker bet,” he added.

“The index is down 10%, you gain 10%. Fine. But that’s not why you bought it. You bought it because you expect the index to go up.”

Self-made hedge

Cramer said he would rather be long the index and hedge it himself.

“It’s a sweetener. They’re trying to give you an incentive to buy this five-year note for the absolute return. I would rather have a buffer even if it’s smaller than 25%. Or I could just purchase the index fund and hedge it out myself with some puts.

“You’re giving up too much liquidity. Five years is a long-term investment, and during all that time, you’re giving up five years’ worth of dividend.”

The Euro Stoxx 50 index yields 3.25%.

“I’d rather buy the index, get the full dividends, hedge it myself and I wouldn’t have the illiquidity of five years,” he said.

The notes are guaranteed by JPMorgan Chase & Co.

UBS Financial Services Inc. and J.P. Morgan Securities LLC are the agents.

The notes will price on Sept. 25.

The Cusip number is 48130V731.

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