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HSBC to price leveraged tracker notes linked to Dynamic 5 ETF index
By Angela McDaniels
Tacoma, Wash., Dec. 12 - HSBC USA Inc. plans to price 0% leveraged tracker notes linked to the HSBC Dynamic 5 ETF index, according to an FWP filing with the Securities and Exchange Commission.
The tenor of the notes is expected to be four to five years. The exact maturity date will be set at pricing.
If the index return is greater than zero, the payout at maturity will be par plus 150% of the index return. If the index return is less than zero, investors will have 1-to-1 exposure to the decline.
The index is based on a risk-controlled momentum strategy. The index reflects the excess return performance of a systematic investment strategy that, each month, selects the portfolio with the highest historical six-month return out of five multi-asset, risk-controlled portfolios. Each such portfolio consists of a hypothetical investment in a multi-asset basket of exchange-traded funds (with dividends reinvested) and a cash investment that accrues (daily) one-month Libor. The ETF constituents represent a range of asset classes and geographic regions that are categorized into separate investment categories. From these investment categories, five thematic ETF baskets are constructed with varying weights (but fixed for each basket) assigned to each investment category (and ETF).
The index uses the (annualized) volatility of daily returns of the ETF baskets as a risk measure, and the weight allocated to the ETF basket in the corresponding portfolio (up to a maximum of 100%) is determined daily with the aim that the volatility of the portfolio is not higher than 5%. The index selects each month the portfolio with the highest six-month return. The level of the index is calculated based on the returns of the selected portfolios in excess of one-month Libor, less the index fees of 0.5% per year.
HSBC Securities (USA) Inc. is the underwriter.
The notes will price and settle in January.
The Cusip number is 40432XQW4.
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