Credit Suisse's autocallables tied to indexes, ETF offer stock exposure without the volatility

By Sheri Kasprzak

New York, Jan. 6 - Credit Suisse AG, Nassau Branch recently announced plans to bring to market 10% to 12% autocallable yield notes linked to two indexes and an exchange-traded fund. The issue, said Gurdeep Ubhi, analyst with London-based Future Value Consultants, could be a way for investors to access the stock market without being subjected to the volatility of certain stocks.

"Investors are seeking stock market returns without having to invest in stocks," said Ubhi.

"These include the S&P [500], the Russell 2000 and have a return of between 10% to 12%, which is quite an annual income."

The interesting part about the notes, said Ubhi, is that the securities are linked to three underliers instead of just a single index or fund.

"Having three underliers increases the risk of the barrier being reached, and the investor will receive the return on the least-performing index," he said.

The structure is relatively new, Ubhi noted, having been developed about 18 months to two years ago.

Credit Suisse's notes, which are due Jan. 23, 2013, are linked to the Russell 2000 index, the S&P 500 index and the Market Vectors Gold Miners exchange-traded fund, according to a 424B2 filing with the Securities and Exchange Commission.

The notes will be redeemed at par if all of the underlying components close at or above their initial levels on a quarterly observation date.

If the final level of the worst-performing component is greater than or equal to its initial level, the payout at maturity will be par plus the return of that component.

If the final level of the worst-performing component is less than its initial level and a knock-in event has not occurred, the payout will be par plus the absolute value of the return of that component. If a knock-in event has occurred, investors will be fully exposed to the decline of the worst-performing component.

A knock-in event occurs if any component falls to or below its knock-in level - 65% of its initial level - during the life of the notes.

HSBC's notes offer buffer

Similarly, investors who want some exposure to stocks without being forced to endure the volatility of specific stocks have been flocking to products like HSBC USA Inc.'s 18-month buffered Accelerated Market Participation Securities. The bank is slated to price six of these AMPs on Jan. 24.

Ubhi said Friday that this particular structure is very popular given the fact that investors want the exposure with some protection when conditions are volatile.

Two of HSBC's issues will be linked to the S&P 500 index, two to the Russell 2000 index and two to the iShares MSCI Emerging Markets index fund.

The AMPs provide double exposure to any positive return of the relevant reference asset, subject to a maximum return.

The notes also provide a 10% buffer, which is an important aspect, said Ubhi.

"It's another way of earning a return when there's higher volatility of select stocks," Ubhi said.

Credit Suisse's notes will price on Jan. 18 and settle on Jan. 23.

Credit Suisse Securities (USA) LLC is the agent.

The Cusip is 22546TKF7.

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