GS Finance’s $5.23 million of buffered PLUS on index basket reintroduce lookback feature

By Emma Trincal

New York, Jan. 31 – GS Finance Corp.’s $5.23 million of lookback buffered Performance Leveraged Upside Securities due July 31, 2026, linked to a weighted basket of indexes bring back a popular but infrequently used feature allowing investors to lock in a lower initial price during a set “lookback” period following the trade date.

The basket offers global equity exposure as it consists of the S&P 500 index with a 52% weighting, the Topix index with a 20% weighting, the Euro Stoxx 50 index with a 10% weighting, the MSCI Emerging Markets index with a 10% weighting and the Russell 2000 index with an 8% weighting, according to a 424B2 filing with the Securities and Exchange Commission.

The initial basket level will be equal to the lowest closing level of the basket on any scheduled index business day during the approximately one-month period from and including the pricing date to and including Feb. 26, 2024.

The payout at maturity will be par plus double the basket gain with a maximum payout of par plus 29%.

Investors will receive par if the basket finishes flat or falls by up to 10% and will lose 1% for every 1% decline beyond 10%.

For asset allocators

“This deal is really smart,” a market participant said.

“When I look at structured notes, I see two different types of use. One is for yield enhancement; the other is for equity replacement.”

The notes fit into the second category, he added.

“You’re trying to emulate what looks like a traditional allocation and put it in a note and add some protection to it.

“You have the benefit of diversification in one note. You’re enhancing a portfolio and you’re adding leverage and protection to it,” he said.

Shorter lookback

But what made the notes stand out was the lookback.

“I haven’t seen any lookback for a while, and it’s too bad. It’s a great feature. It alleviates the risk of market timing,” he said.

The one-month lookback period may be shorter than what issuers priced years before.

“We’ve seen longer periods in the past such as three months and exceptionally, six months,” he said.

“But it hurts pricing when you do that.”

The longer the lookback period, the more investors will lose on other terms, he noted.

“By doing a one-month lookback here, you may get a higher cap. There may be a tradeoff between higher cap and shorter lookback and vice versa,” he said.

Another important advantage of the one-month lookback compared to longer periods was the daily observation.

“With longer lookbacks you may only have a weekly or even monthly observation, which is not so great.

“It’s all about tradeoffs,” he said.

The timing of the deal may also benefit investors.

“Now is a good time to utilize this feature even on a one-month lookback because the market has been choppy,” he said.

Balanced basket

Another interesting detail was the introduction of the Russell 2000 index in the global equity basket.

Usually, underlying baskets designed for global equity exposure only include the S&P 500 index for the U.S. allocation. The rest consists of a few international equity benchmarks.

“They probably added the Russell to make the note a little bit more aggressive. If the economy continues to be strong, we should see the Russell rally,” he said.

“There is less correlation between large and small cap indices. The issuer probably decided to incorporate the Russell as a way to enhance the return.”

A financial adviser said he liked the lookback and the mix of indexes.

“The lookback makes a difference somewhat. The more volatile the market is, the more you gain from it,” he said.

He viewed the 40% international allocation favorably.

“You’re overweight U.S. but not by a whole lot. It’s still a reasonable mix. At least you have some balance,” he said.

Goldman Sachs & Co. LLC is the agent. Morgan Stanley Wealth Management is acting as dealer.

The notes settled on Wednesday.

The Cusip number is 40057XZ65.

The fee is 1%.

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