Barclays’ buffered SuperTrack notes linked to S&P 500 aimed at mildly bullish investors

By Emma Trincal

New York, Dec. 21 – For investors who want to participate in the market but have modest return expectations for the short term, Barclays Bank plc’s 0% buffered SuperTrack notes due March 28, 2018 linked to the S&P 500 index offer leveraged and capped exposure aimed to satisfy such market view, sources said.

The payout at maturity will be par plus two times any index gain, up to a maximum return of 12.5%, according to a 424B2 filed with the Securities and Exchange Commission.

Investors will receive par if the index falls by up to 10% and will be exposed to any losses beyond 10%.

Mildly bullish

“You don’t need the index to jump with this one. It only has to be up 6.25% before you hit the cap,” said Steve Doucette, financial adviser of Proctor Financial.

“If you believe the rally is going to continue in the next couple of months but that it may flatten or lose momentum, it gives you a decent little return. If you’re wrong, this has a little bit of protection in there.”

More cap

He said he likes the structure but would probably prefer a more bullish bias.

“I’d give up some of the leverage and get some higher cap because the market is so volatile, you probably don’t need that much leverage if it’s up,” he said.

“I’d decrease the leverage. It’s nice to have two times, but you don’t want to be capped out.”

The difficulty in picking the terms for the downside is timing.

“These are defined outcomes. That’s the good part about structured products. The not-so-good part is the uncertainty associated with the timing,” he said.

“We do have this momentum, but how long is it gonna last before we get the pullback?”

Short duration

Jonathan Tiemann, president of Tiemann Investment Advisors, said that he likes the short tenor of the notes.

“I tend to really prefer shorter maturities. You get less credit risk, and the liquidity is less of an issue,” he said.

The structure is fairly straightforward.

“There is an obvious trade-off. You give up some of the upside for the protection. You need the S&P to grow 5% a year to get the maximum at maturity. The leverage is really helpful if you’re not overly bullish,” he said. “If the market is down, you get a little bit of protection. When it’s up, you give up the big upside.

“These notes are for people who don’t have a strong positive view on the market.”

Pros and cons

Compared to a straight investment in the index fund, he said that the notes offer two advantages: the asymmetrical leverage, as only the upside is leveraged, and the buffer.

“If we’re going to hit a pretty severe speed bump, having the buffer can be useful. Of course, investors may do it differently. It depends on who your clients are.”

Tiemann said that he would prefer investing in the ETF directly for the liquidity. Alternatively, buying put options on the S&P 500 index would be an efficient way to protect the portfolio.

Barclays is the agent.

The notes will price on Dec. 23 and settle on Dec. 29.

The Cusip number is 06741VFD9.

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