Barclays offers Prosper Veqtor notes again; UBS adds to popular energy infrastructure MLP ETN

By Kenneth Lim

Boston, Nov. 15 - Sequels dominated the structured products marketplace on Monday. Barclays Bank plc announced another offering of notes linked to the Veqtor index, while UBS AG, Jersey Branch sold more exchange-traded notes linked to an energy infrastructure index.

Barclays plans to price new zero-coupon Perpetual Rolling Open Structure Protecting Equity Returns Veqtor notes due November 2015 linked to a portfolio that tracks the S&P 500 Dynamic Veqtor Total Return index and index-linked cash deposits.

The index allocates a greater proportion of its notional value to the U.S. equity market during periods of low volatility and a greater proportion to the S&P 500 VIX Short Term Futures index when market volatility is high. The starting value of the portfolio, for calculation purposes, is set at 98% of par.

The index also has a "stop-loss" feature that shifts the entire allocation into cash during certain circumstances.

At maturity, investors will receive the value of the portfolio, subject to a floor. Investors will receive at least $784.

The Barclays product's built-in volatility hedge has appealed to investment advisers and retail investors, one investment adviser said.

"It's a pretty unique product, and I think it has a few things in its favor," the adviser said. "One, it's got very transparent and easy-to-understand rules, and they are very easy to explain to people. Second, hedging your equity exposure with a volatility index makes sense. Third, investors have become more concerned about risk, and products that try to address that see a lot of interest."

But the adviser said investors should be aware that the volatility hedge does not guarantee positive returns, noting that the index is currently down on the year. The product also comes with higher-than-normal costs.

"It's not a perfect algorithm," the adviser said. "And you start out with a 2% loss and after that you pay 3% every year. It's still cheaper than a hedge fund, but it's not a cheap structured product."

UBS sells ETNs

UBS also added to a popular product, pricing an additional $100 million of its exchange-traded access securities due April 2, 2040 linked to the Alerian MLP Infrastructure index.

The notes have a principal amount of $25 each. UBS said it would sell the notes from time to time at up to 101.5% of par. Interest is payable quarterly and equals the sum of the cash distributions that a hypothetical holder of the index constituents would have been entitled to receive during that quarter, reduced by the accrued tracking fee.

The payout at maturity will be par plus the index return, which could be positive or negative, minus the accrued tracking fee. The fee amount is initially zero. It will increase each day by an amount equal to 0.85% per year multiplied by par plus the index return on that day.

The notes are putable on weekly repurchase dates, subject to a minimum of 50,000 notes. UBS can call the notes beginning April 7, 2011. The payout upon redemption will be par plus the index return minus the accrued tracking fee and, if the notes are being put back by their holder, minus a redemption fee of 0.125% of par.

The notes trade on NYSE Arca under the symbol "MLPI."

The index provides an enhanced liquid subset of master limited partnerships that includes only midstream energy transportation and storage assets and selects those companies that are infrastructure hard-asset focused.

One market source said UBS' suite of ETNs linked to commodities and energy MLPs have seen strong demand from registered investment advisers and institutional investors such as pension funds and endowments.

"Many times the ETN is the only way to get exposure to a certain index, or sometimes they're more efficient," the source said.

Those efficiencies can be in terms of costs and taxes, the source said.

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