Eksportfinans, RBC link barrier notes to S&P 500; RBC's contingent coupon part of trend, advisor says

By Kenneth Lim

Boston, Sept. 4 - Eksportfinans ASA, through Wachovia Capital Markets, LLC, and Royal Bank of Canada on Thursday launched products that cater to views that the S&P 500 index will be range bound.

Eksportfinans plans to price zero-coupon absolute return range notes due April 15, 2010 linked to the S&P 500.

At maturity, the payout for each $1,000 note will be par plus the absolute value of the index change, provided the underlying index never trades beyond plus or minus 17% to 20% of the initial level. The exact range will be set at pricing.

If the barrier is broken, investors will receive par.

Wachovia is the agent.

RBC launches bullish barrier notes

RBC is offering zero-coupon principal protected bullish barrier notes with a contingent coupon due Sept. 30, 2010 linked to the S&P 500.

If the index ends above its initial level but has never closed above 125% of the initial level during the life of the notes, investors will receive par plus the final index gain.

If the index ends above its initial level and has closed above 125% of the initial level during the life of the notes, investors will receive par plus 5.5%.

If the index finishes flat or below its initial level, investors will receive par.

Notes suit range-bound views

An investment advisor said the products cater to investors who believe the S&P 500 will be trading within a range in the next 12 to 18 months.

"It's definitely interesting to see both products," the advisor said. "Maybe many people think the market's not going to take off, nor is it going to collapse. More of the same."

The RBC notes are more bullish, but both products require the underlying index to stay within trading boundaries, the advisor said.

"It's a matter of shifting your range to the right if you're more bullish, to the left if you're more bearish or neutral," the advisor said.

Extra coupons gain traction

The advisor noted that the RBC product's contingent coupon of 5.5% over two years reflects a recent increase in products that offer similar bonuses or minimum returns.

"I think maybe to get more people interested in structured products, some of the issuers are offering features like these to try to get investors to view these as good alternatives to CDs," the advisor said. "What a 5.5% coupon or a 5% minimum return is really doing is compensating the investor for putting away that money for however long the note lasts. So as an investor I see that I'm not losing much more compared to putting my money in a CD, plus there's the possibility that I get even more."

The feature usually costs investors in terms of the potential upside, the advisor said.

"Instead of having a barrier at 130% for example, the issuer says you have a chance to get 5.5% even if the barrier is broken, but they lower the barrier to 125%," the advisor said. "So you lose a bit on the upside, but if you're a cautious investor and you're not looking for exceptional gains, and you think the S&P is going to go up in the next two years, this would make sense for you."

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