Barclays’ $10 million autocallables on biotech ETF show good terms, high entry amid rally

By Emma Trincal

New York, March 12 – Barclays Bank plc’s $10 million of contingent income autocallable securities due March 12, 2025 linked to the SPDR S&P Biotechnology ETF offer attractive terms for a short-dated note, advisers said. But the timing of the trade was more of a concern given how fast the underlying’s share price has jumped over the past few months, they noted.

Investors will receive a coupon of 13.84% per annum if the underlying ETF closes at or above its 80% downside threshold on a monthly observation date, according to a 424B2 filing with the Securities and Exchange Commission. Previously unpaid coupons will also be paid.

The securities will be called automatically at par if the price of the underlying ETF is greater than or equal to its initial price on any monthly review date.

At maturity the payout will be par unless the ETF closes below its 80% downside threshold level, in which case investors will lose 1.25% for every 1% that the ETF declines beyond 20%.

Popular fund

Tom Balcom, founder of 1650 Wealth Management, noticed the recent surge of the underlying share price.

“The timing is a risk here. The ETF had a nice run recently. I think it’s because of the buzz around weight loss medications,” he said.

Eli Lilly’s Mounjaro, Novo Nordisk’s Ozempic and Wegovy as well as Viking Therapeutics’ VK2735 are some of the new anti-obesity and anti-diabetes prescription drugs that have received heightened media attention of late.

“Once a company or a sector gets exposure to the news, the stock is going to surge. That’s been the case with XBI for a few months,” he said.

“XBI” is the ticker for the SPDR S&P Biotechnology ETF.

“I’m not a big fan of investing based on headlines.”

Terms

Moreover, Balcom said that he usually does not use sector ETFs as underliers, preferring broadly diversified indexes.

The structure of the note, however, was attractive, according to this adviser.

“It’s a nice coupon. The buffer provides some downside protection. I always like to see a buffer. Even though this one has a gearing, 20% is a good starting point,” he said.

“This could be an attractive note for someone looking to get exposure to the sector.”

Short memory

But Balcom identified one important drawback.

“There’s a good deal of reinvestment risk there. You can get called after just one month,” he said.

An early automatic call would be an issue for clients seeking income, he added.

The memory feature was a plus, but the “no-call” limited its benefits.

“The sooner the call, the less valuable the memory,” he said.

“If you get called next month, the memory is irrelevant. You get your 1.15% and you’re out. That’s not a very good outcome.”

The absence of any call protection also had an impact on the cost to the client.

The fee is 0.1%, according to the prospectus.

“Even though 0.1% for one year is not high, that commission turns into 1.2% if you get called right after one month.

“I just wish you would have at least three or six months no-call,” he said.

A bit overvalued

An adviser also pointed to the biotech rally and concluded that the timing of the trade was not satisfactory despite the terms of the notes.

“The coupon seems reasonable. I like the 20% buffer. I like the memory. Even if you get called early, it is what it is. Your return is still 13.84% a year,” he said.

“But XBI has gone up a lot compared to what it used to be in October.”

The underlying closed at $99.46 on the trade date, or 56% above its $63.80 low of Oct. 31.

“It’s been priced somewhere a bit above fair value. The fair value is probably around $91 or $92 just based on insiders’ activity and the profitability of the companies that make the ETF,” he said.

Timing

Better entry prices, he suggested, would have been during one of the two lows observed in the past couple of years.

One was in the first half of 2022; the other in October.

“The price at those points was around $60. It would have been a bargain then. But now, near $100, it has become overvalued,” he said.

“The question is not so much – is it a good investment, but – is buying now a good investment?

“The structure is reasonable. But the starting point is very bad. Timing is the real issue with this note.”

Barclays Capital Inc. is the agent. Morgan Stanley Wealth Management is the dealer.

The notes settled on Monday.

The Cusip is 06745Q7H6.

The fee is 0.1%.

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