HSBC links CD to climate change index; popular underlying can draw conservative investors, advisor says

By Kenneth Lim

Boston, Oct. 8 - A planned offering of certificates of deposit by HSBC Bank USA, NA linked to a climate change index could be an interesting product for conservative investors, an investment advisor said.

HSBC plans to offer zero-coupon CDs due Oct. 31, 2014 linked to the HSBC Investable Climate Change index.

The Climate Change index measures the performance of companies involved in climate change-related businesses.

At maturity, investors will receive par plus any index gain. Investors will receive at least par.

The CDs may be put annually beginning Oct. 28, 2009. Investors will receive the then-current market value minus an early redemption charge.

The CDs will be callable on Oct. 31, 2011 at 124% to 130% of par.

Fashionable underlying

Green investment themes have become more common over the past few years, the advisor said.

"I don't know if it's the flavor of the month, but it's certainly one of the flavors," the advisor said.

"There's been a lot of attention given to climate change issues because of concerns about global warming and the rising oil prices, so it's an issue many people will have some familiarity with. I think there's also a view that governments will also be spending more money on the sector, so there's an expectation of growth."

Pegging a CD's return to theme could therefore be interesting to an investor who thinks that the sector is up and coming, the advisor said.

"If you think index is going to go up by more than the prevailing deposit rates, this could be interesting because you stand a chance to make more than in a plain CD," the advisor said.

Notes suit conservative investors

The FDIC-insured CD wrapper makes the product suitable for investors who have a low risk tolerance, the advisor said.

"I've heard people say that if you think the underlying is going to go up, you should forgo some principal protection, try to get more upside through a leveraged product," the advisor said.

"But I think that when you plan an investment the first thing you have to ask is what your risk level is, and then try to get the best returns while staying within that risk level. So if a conservative investor is not comfortable with a capital-at-risk product, even if they feel strongly that the underlying index is going to go up, they're not going to be comfortable with something that's too risky. So investors who desire principal protection and who think this underlying index is going to improve may find that this CD is suitable for them."

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