Barclays’ three-year buffered SuperTrack notes tied to Stoxx 50 show compelling pricing

By Emma Trincal

New York, Oct. 4 – Barclays Bank plc’s 0% buffered SuperTrack notes due Oct. 29, 2021 linked to the Euro Stoxx 50 index was surprisingly appealing, advisers said, for it combined a solid protection and aggressive growth elements.

The payout at maturity will be par plus 1.65 times to 1.7 times any index gain, according to a 424B2 filing with the Securities and Exchange Commission.

Investors will receive par if the index falls by up to 30% and will be exposed to any losses beyond the buffer.

Terms

“I’m surprised. No cap and 30% buffer. ... Again, people expect a lot of volatility from European stocks even though it hasn’t done well. I would be more inclined to be a contrarian. So far it’s emerging markets that have done really the worst,” said Steve Doucette, financial adviser at Proctor Financial.

“If the market turns, it’s a heck of a buffer.

“If it doesn’t turn, if instead we have a rebound, a reversion to the mean, then you capture the full upside with no cap.”

As always, the “hard part” of investing is finding out whether the timing is right.

“We’re 9½ years into a bull. Will it turn next year or the year after?

“The market could run for another year, maybe two. If there’s a pullback, you’re protected.”

Shorter maybe

But investors should hope that the notes offer more than a mere protection. Doucette said he would be inclined to invest money over a shorter timeframe at this point in the cycle.

“I would probably want to see what I can get with a two-year. Can I get a 20% buffer? Probably not... When you get down less than three years, there’s a huge reduction in what you get as far as good terms.”

While the notes offer relative peace of mind with the large buffer, their main purpose is bullish, hence the unlimited upside and leverage factor of 1.7x. Doucette said the notes would be a waste if they were just used to ride a bear market.

“The one thing I would look at is duration,” he said.

“I would just be running different scenarios. How long do you want to hold this note based on when you predict when the market might pull back and/or rebound?”

Better value

HSBC is readying other SuperTrack notes on both the S&P 500 index and the Euro Stoxx 50.

The most comparable one based on the S&P 500 index is a four-year note, which offers a leverage factor comprised between 1.05 and 1.1. Its 25% buffer is also smaller.

The pricing difference derives in part from the underlying index. The European benchmark with a 3% dividend yield pays nearly twice as much in dividend as the S&P 500 index, which yields 1.73%.

Matt Medeiros, president and chief executive of the Institute for Wealth Management, expressed interest in the deal.

“The European market is one we keep our eyes on. We put an underweight on it nine months ago.”

This was because the index was underperforming and the euro zone was facing too many geopolitical and currency headwinds, he explained.

“But the valuations are looking good right now.

“This note appears to be a very interesting opportunity in that regard.

“Both the cap and the downside protection are important.

“To have a no-cap with leverage and a 30% buffer is compelling.”

Medeiros said he liked the tenor as well.

“Three years is awesome.

“I’m questioning the near term. We could have a pullback. A three-year gives you time to work things through.

“Even with modest gains, I’d be happy given the leverage and no cap on the upside.”

Barclays is the agent.

The notes will price on Oct. 31.

The Cusip number is 06746XRR6.

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