JPMorgan to price pair of similar buffered leveraged notes tied to EAFE ETF for nuanced views

By Emma Trincal

New York, June 15 – JPMorgan Chase Financial Co. LLC is prepping two nearly identical leveraged buffered notes on the same underlying with one more aggressively bullish version while the other is more defensive in an effort to attract a wider range of bulls, sources said.

JPMorgan Chase Financial Co. LLC plans to price two separate offerings of 0% capped buffered return enhanced notes due June 28, 2019 linked to the iShares MSCI EAFE exchange-traded fund, according to a 424B2 filing with the Securities and Exchange Commission.

Almost twins

The first issue is more bullish with a higher cap and a lower buffer.

If the final share price is greater than the initial share price, the payout at maturity will be par plus two times the ETF return, subject to a maximum return that is expected to be at least 21.5% and will be set at pricing. Investors will receive par if the ETF declines by 10% or less and will lose 1% for every 1% that it may decline beyond 10%.

The second issue of notes shows, instead of two, a 1.5 times leverage; it offers a lower cap of 15% versus 21.5%; finally the 20.5% buffer is more than twice the size of the other.

“They’re both nice vanilla notes. One has a higher cap. That’s the more bullish one. The other has more downside protection. The bullish one also has more leverage,” said Steve Doucette, financial adviser at Proctor Financial.

EAFE

Doucette said he has been bullish on international equity and Europe for a long time. Now the trend is firmly established.

“Turn on CNN and all you hear is that you have to allocate to Europe and international stocks. I’ve been doing that for a while,” he said.

“The EAFE is a pretty good index for that. It’s not just Europe but also Australia and Asia.”

The acronym “EAFE” stands for Europe, Australia, Asia and the Far East.

“If I had to be bullish I’d be more bullish on the EAFE than on the U.S.,” he said.

More cap

Asked which one of the two notes he would prefer, he said that: “I might go right in between.”

The 15% cap, which is 7.5% a year, was not high enough for him.

Instead he would consider a cap of 20% even if it meant decreasing the leverage. At the same time he would try to keep some buffered protection.

“I would target a return of 10% a year. Whatever I need to do with a combination of leverage and buffer to get me there I probably would do,” he said.

Defense first

Matt Medeiros, president and chief executive of the Institute for Wealth Management, said he was bullish on the MSCI EAFE index but that he would prefer the notes with the greater buffer.

“I like both because I’m very optimistic on the underlier,” he said.

“Being optimistic you would think I would gravitate toward the one with the higher cap. Here in this case I would be inclined to prefer the higher buffer.

“The rationale for this is simply because it’s such a short-term note, I would want to protect my downside first.”

Long, short overlay

Medeiros said he could use this note as a complement of the ETF in order to make short-term bets.

“I would use the notes for a core view on the asset class.

“But I could add to that a direct play with the ETF if I had a short-term tactical view on Europe,” he said.

European stocks make for 63% of the iShares MSCI EAFE fund.

For instance if the European economic indicators were to improve in the second half of the year, Medeiros said he may take a long position on the ETF. If at the contrary European markets went through a sell-off, he would short the ETF.

“I would own the notes as a core and I would use a different security to either overweight the asset class or hedge it if I wanted to.”

J.P. Morgan Securities LLC is the agent.

JPMorgan Chase & Co. is the guarantor.

Both series of notes have the same agent and guarantor.

The two issues will price June 27.

The Cusip number for the notes with the higher cap is 46647MHG1.

The Cusip number for the notes with the bigger buffer is 46647MHK2.

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