Barclays’ SuperTrack tied to FTSE 100 index show good terms, but bet on one country is an issue

By Emma Trincal

New York, June 14 – Barclays Bank plc’s 0% buffered SuperTrack notes due June 29, 2020 linked to the FTSE 100 index have a lot to offer in how the structure is built, advisers said. But as asset allocators, those buysiders are not eager to bet on a single country, preferring notes linked to more diversified portfolios.

The payout at maturity will be par plus two times any gain in the index capped at par plus 36% to 38%. The exact maximum return will be set at pricing, according to a 424B2 filing with the Securities and Exchange Commission.

If the index falls by up to 10%, the payout will be par.

Otherwise, investors will lose 1% for every 1% decline beyond 10%.

Steven Foldes, vice-chairman of Evensky & Katz / Foldes Financial Wealth Management, said he liked the terms.

Solid structure

“There are a lot of things I like about the notes. But there’s something I don’t like, which would preclude us from buying it,” he said.

In the “plus” column, he mentioned Barclays’ creditworthiness first. The tenor was also attractive.

“Two years is certainly within the range that we like. It’s very good.

“We also like the 2x leverage, clearly.”

The buffer made sense to him in relation to the length of the note.

“We always say that a buffer on a long-dated note is not valuable because over longer timeframes your underlying is more likely to appreciate.

“On a short period of time however the index could be down, so having a buffer on a two-year note is a very good thing.”

Cap

The 36% to 38% cap over the short tenor also caught his attention despite a dividend yield of 3.87% on the underlying index.

“Having a 17% to 18% compounded annualized return is within the range of being acceptable. It’s attractive notwithstanding the fact that we’re going to be losing high-paying dividends”

“We don’t like to cap out with low caps but you’re talking of getting 18% a year.

“Whether you expect modest or high returns, clients can’t be too unhappy with that kind of cap especially when you have a buffer to cushion your losses.

“In short: these are very good terms.”

Concentrated play

The “hurdle” was the underlying market.

“We don’t make single-country bets,” he said.

“If it was on the Euro Stoxx 50 or the MSCI World index ex-U.S., this would be much more exciting for us.

“But making a bet on the U.K. is something that gives us pause for concern.

“I’m not disparaging the U.K. although this is a country that has its own challenges, especially with Brexit.

“But when we’re investing in non-U.S. markets whether developed or emerging, we do it on much more diversified benchmarks.

“So despite those very attractive terms, the single-country focus is an impediment we couldn’t overcome.”

Non-U.S. advantage

Steve Doucette, financial adviser at Proctor Financial, had a similar view although he would not be totally opposed to the idea of a single-country play as long as valuations made sense.

“I typically don’t do one country, but you always have to look,” he said.

“I’d have to go back and do the analysis on this underlying to see if it makes sense to be in that market or not.”

The terms were better than the average U.S. deal, he said.

“You could not get these terms on the S&P alone. For the U.S. you’d have to have more than one index, I’m sure,” he noted.

“It’s a decent buffer. You get 200% leverage and 17.5% cap per year. That’s a nice note.”

Value

But the terms were not enough to warrant a decision and more research would have to be made.

Part of his analysis would consist of mapping the performance of the FTSE 100 index over that of other benchmarks either domestic or international.

Doucette said that right now he is considering the emerging markets because the performance of this asset class is lagging other broad indexes, especially the U.S. markets.

“The U.K equity benchmark may not be cheap at this time. You have to think about the entry point going forward,” he said.

Since its low at the end of March, the FTSE 100 has jumped 13%, seeing a faster rebound than the S&P 500 index, which is up less than 8% since its last low in April.

“I think I’ll stick to my idea of looking into emerging markets...capture a little bit of volatility there,” he said.

Barclays is the agent.

The notes will price on June 26 and settle on June 29.

The Cusip number is 06746XEG4.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.