Goldman's leveraged buffered notes linked to MSCI EAFE offer defensive international play

By Emma Trincal

New York, April 10 - Goldman Sachs Group, Inc.'s 0% leveraged buffered index-linked notes tied to the MSCI EAFE index give cautiously bullish investors access to the equity markets of developed countries, said sources.

The notes will mature between 24 and 27 months after issue, according to a 424B2 filing with the Securities and Exchange Commission.

The payout at maturity will be par plus double any index gain, up to a maximum settlement amount of $1,260 to $1,305 for each $1,000 principal amount. The exact cap will be set at pricing.

Investors will receive par if the index falls by up to 15% and will lose 1.1765% for each 1% that it declines beyond 15%.

"This is for a defensive play first," said Tom Balcom, founder of 1650 Wealth Management.

"If you have investors who are worried about volatility, then it's a great note for them."

Defense

Balcom said that this type of structure is appealing.

"I love those buffered enhanced products because they give you upside exposure but also the protection," he said.

"If you're bullish, don't bother. Stay long and don't get a cap. If you're not comfortable with Europe, don't buy this investment.

"But for an investor who wants exposure to international stocks with protection, it makes sense. This has a 15% buffer. It's a good buffer for a two-year."

Pricing

Frederick Wright, partner and chief investment officer at Smith & Howard Wealth Management, said that not only the structure but also the timing of the upcoming note should give investors some level of comfort on the downside.

"These terms are good," he said. "The timing is good given the pullback we've had lately."

The S&P 500 has been declining steadily over the past five days, losing more than 4% since the beginning of the month.

Wright said that he likes the 15% buffer.

"I think 15% is a good number. I like the fact that it's not real long-term in duration. I find it difficult in general to find a 15% buffer in this market," he said.

"The downside leverage [at a rate of 1.1765%] doesn't bother me. As long as it's disclosed and you know what you're dealing with, it's OK to have a gear. It allows you to have better terms on the upside."

European stocks

Wright noted that international exposure is an essential component of an investor's portfolio. However, the concentration of the index in European equity should be taken into account before investing.

The top country weightings in the index are the United Kingdom (22.65%), Japan (21.64%) and France (9.06%), according to the prospectus.

Spain represents 2.80% of the index and Italy 2.25%.

"I would like it better if it included the U.S. because of the uncertainty around the European debt crisis," Wright said.

"On the other hand, you have to have international exposure for the long term.

"If you buy this after the market downturn and on top of that with a 15% buffer, you get some decent level of protection.

"Of course, if the market sell-off was to persist and worsen, this note would not offer adequate protection.

"You have to buy this with some degree of bullishness."

Goldman Sachs & Co. is the underwriter.

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