CIBC’s $1.26 million capped leveraged notes on S&P 500 show strong terms for confident bulls

By Emma Trincal

New York, May 10 – Canadian Imperial Bank of Commerce’s $1.26 million of 0% capped leveraged buffered notes due Aug. 10, 2022 linked to the S&P 500 index provide investors with a competitive cap and downside buffer given the short-term and single-asset exposure, a financial adviser said. But for those who think the market could turn more volatile at the end of the long bull cycle both upward and downward, the cap and the buffer may be inadequate, another adviser said.

If the index return is positive, the payout at maturity will be par plus 1.2 times the index gain, capped at par plus 13.2%. Investors will receive par if the index falls by up to 10% and will lose 1.111% for each 1% loss beyond 10%, according to a 424B2 filing with the Securities and Exchange Commission.

Mildly bullish

“This is a very nice, plain vanilla note. I would consider it,” said Carl Kunhardt, wealth adviser at Quest Capital Management.

“It’s simple, easy to explain. I don’t care much for geared buffers, but you have to be able to pay for the leverage somewhere. So, I think it’s a fair tradeoff.

Kunhardt said he is moderately bullish for the short term.

“Given that the outlook for the S&P for the next 15 months is positive even if I don’t expect huge returns, the leverage is a big help here. If the S&P is up 7% for instance, I’m going to exceed that by 20%. I like that.”

Rolling the dice

Kunhardt remains bullish although he admitted that some parts of the markets, including the five big-tech stocks, which dominate the performance of the S&P 500 index, are “significantly overpriced, overstretched.”

At least the structure offers a 10% hard protection. For bears, however, the protection would not be sufficient, he noted.

“If we have a big crash, it would be snake eyes.

“Any time you invest in the market, you take that risk. The biggest risk really is inflation. Everybody agrees on this, especially with big government spending. But inflation is not necessarily bad for all stocks,” he said.

Core holding

Kunhardt said he liked the tenor but would be flexible on the maturity as long as the underlying does not fall into an “exotic mix.”

“I like the short-term tenor. But since the S&P is part of my core, I could have gone all the way up to five years.

“It’s when you’re playing with those worst-of on stocks that I don’t want long-term exposure.

“But with the S&P whether short or long term, I’m fine. It’s always going to be the central piece of any portfolio.”

In conclusion, Kunhardt said the notes met his criteria.

“I would do it. I don’t have any reservation on it,” he said.

Music still on

Kirk Chisholm, wealth manager and principal at Innovative Advisory Group, held a different view.

“Frankly the market we’re in right now feels very much like 1998-1999. There’s potential for a large upside and a very large downside at the same time,” he said.

“Having lived through this period I wouldn’t want to bet that the market is going to move between minus 10% and plus 13% over the next 15 months.”

Chisholm pointed to the shortcomings of the terms in today’s market, which he said is characterized by uncertainty.

“This is not really appealing because it limits my upside,” he said.

“If we’re in the final stage of a bull market sort of like 1998-1999, you don’t even need leverage. You just need a higher cap. The upside will take care of itself.

“But if we’re going to get a big drop, 10% is not going to be enough.”

Hard predictions

For this adviser, the nearly impossible task faced by advisers and investors alike right now is to call the end of the bull market.

“We’re in a period where we’re printing money. The market keeps going up. This note would be more appealing in a range bound market. But I don’t think that’s where we are right now,” he said.

Chisholm added that he was “cautiously optimistic.”

“We could continue to see the market go up. I’m just very mindful that at some point the party is going to end. We know it’s going to happen. We just don’t know when.

“If we’re in 1998-1999, I certainly don’t want to miss out. I also don’t want to be holding this note if we’re about to have a big pullback.”

CIBC World Markets Corp. is the agent.

The notes (Cusip: 13605W3T6) will settle on Tuesday.

The fee is 0%.

© 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.