Barclays’ buffered SuperTrack notes tied to MSCI EAFE ETF signal renewed focus on buffers

By Emma Trincal

New York, March 22 – Barclays Bank plc’s 0% buffered SuperTrack notes due April 4, 2019 linked to the iShares MSCI EAFE exchange-traded fund offer a competitive buffer, an adviser said.

The payout at maturity will be par plus 1.5 times any fund gain up to a maximum return of 24.1%, according to a 424B2 filing with the Securities and Exchange Commission.

Investors will receive par if the fund falls by up to 15% and will lose 1% for each 1% decline beyond 15%.

“This is only a two-year and they’re giving you a 15% buffer, which is pretty attractive for such a short-dated product,” said Andrew Valentine Pool, main trader at Regatta Research & Money Management.

ETF alternative

Tony Romero, co-founder and managing partner at Suncoast Capital Group, said investors had to decide whether risk-adjusted reward made sense.

“It’s a very simple deal,” he said.

“If the fund goes up in excess of the cap you would be sacrificing that excess in exchange for the benefit of having the underwriter absorb the first 15% losses.

“Are you willing to use this versus buying the security outright?

“I personally would buy the underlying ETF because I wouldn’t want to give up the chance to earn more.

“I can see however how people may find value in the tradeoff.

“And as a salesperson I can see this as a tool to entice people who would shy away from this market.”

Fat yield

The fund pays nearly 3% in dividends. Romero observed that the no-payment of 6% over the course of two years was another concession investors would have to make.

“Your effective cap is not 24% but 18% since you have to remove 6% in dividends. You’re only getting the price movement, not the total return,” he said.

“That’s an important consideration. It makes it less attractive than otherwise because you get no dividends.”

But Romero said that only clients would know if the product would make sense to them.

“It’s really like any security. It’s speculation. You don’t know if your investment is going to be good or bad.

“There is really no way to know at this moment,” he said.

Good defense

Pool said the structure was well-priced for risk-averse yet bullish investors.

“The EAFA offers diversification away from U.S. markets,” he said.

The underlying ETF replicates an index that tracks the performance of developed market equities, excluding the U.S. and Canada.

The top country is Japan with a 24% weighting followed by the U.K. and France, which each have a weighting of 17.75% and 9.90%, respectively.

“It appears that the issuers are designing their notes for advisers who are getting cautious,” he noted.

“People are more defensive. The trend is turning.”

The Barclays structure – a short tenor, 15% buffer and a cap offering double-digit annualized return – would have been hard to find up until recently, he said.

The fund has a 61.5% exposure to European countries, which pay much higher dividends than in the United States, a source noted. Pricing on the S&P 500 index offers less leeway as volatility is muted and the benchmark’s dividend yield is low as well.

“We’ve noticed issuers coming out in the past couple of months with more protection. The number of buffers has increased.

“Investors want less risk. Issuers want to sell. If the customers...in this case the advisers... want more buffers, banks are willing to appease them,” he said.

Barclays is the agent.

The notes will price on March 31 and settle on April 5.

The Cusip number is 06741VPL0.

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