Credit Suisse’s $5.06 million dual directional notes on oil ETF offer boost for sector bet

By Emma Trincal

New York, April 18 – Credit Suisse AG, London Branch’s $5.06 million of 0% dual directional trigger jump securities due April 21, 2022 linked to the SPDR S&P Oil & Gas Exploration & Production exchange-traded fund may satisfy a wide range of views for a narrow sector play on oil stocks, advisers said.

If the final ETF level is greater than or equal to the initial level, the payout at maturity will be par plus 43.2%, according to a 424B2 with the Securities and Exchange Commission.

If the ETF falls but finishes at or above the trigger level, 80% of the initial share price, the payout will be par plus the absolute value of the ETF return.

Otherwise investors will lose 1% for every 1% that the ETF declines from its initial level.

Bouncing back

“It’s an equity fund, but it’s really closely correlated to oil, and we know that oil prices are volatile,” said Steve Doucette, financial adviser at Proctor Financial.

The ETF has outperformed the S&P 500 index so far this year, gaining 20% versus 16% for the broad benchmark.

But the oil stock fund was in bear market territory last year, finishing down 28% while the S&P 500 only lost 6.2%.

“It has underperformed for a while, so you may capture some decent value. If it doesn’t fall on its face, it’s a decent vehicle. You definitely get an above-average return either up or down,” Doucette added.

Many views, one sector

The “boost” on the upside was particularly attractive in a flat market.

On the downside, the absolute return payout would enable investors to outperform in either a sideways market or through a pullback contained above the barrier threshold.

“This could work for a variety of people. The digital is high enough to satisfy a bullish view. The market can be trading in a range. You just don’t want the index to fall too much,” he said.

Despite its advantageous terms, the notes would require further research on the sector prior to making a decision.

“It’s very favorable on both ends. Getting 14.5% a year even if the market doesn’t do anything is neat,” he said.

“But what’s the future of the oil industry? Who really knows?

“There’s obviously some uncertainty in the space. That’s why you’re getting an extended return.

“If you want exposure to the sector, it’s a good deal to make a bet.”

Tolerable cap

Matt Medeiros, president and chief executive of the Institute for Wealth Management, said he liked the notes in part because the limitation on the upside was reasonable and matched his expectations.

“This is an interesting note. I like the terms,” he said.

“I like the digital component of it.

“Over the next three years this is an attractive sector. I wouldn’t be deterred by a 43% maximum return.

“The cap is in line with our expectations, and the digital component makes it attractive to us.”

Given the choice, this adviser would choose to buy the notes instead of the ETF.

“The argument in favor of the ETF is that you could get more than 14% a year. But I don’t see that. I’d much rather get this type of return enhancement on the upside with the barrier and absolute return on the downside.

“20% in protection is very reasonable for the sector.”

Credit Suisse Securities (USA) LLC is the agent with Morgan Stanley Smith Barney LLC acting as distributor.

The notes (Cusip: 22550F112) priced Monday and settled Thursday.

The fee is 3%.

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