Barclays’ 8.75% phoenix autocalls on gold, biotech funds show buffer, long tenor

By Emma Trincal

New York, July 25 – Barclays Bank plc’s buffered phoenix autocallable notes due Jan. 29, 2026 linked to the SPDR S&P Biotech ETF and the VanEck Vectors Gold Miners ETF offer an unusually long maturity for an autocallable structure and the hard protection at the end indicates the notes were designed for a conservative investor, according to sources.

The notes will pay a contingent monthly coupon at an annual rate of 8.75% if each underlying asset closes at or above its 80% coupon barrier on the observation date for that quarter, according to a 424B2 filing with the Securities and Exchange Commission.

Beginning after one year, the notes will be called at par plus the contingent coupon if each asset closes at or above its initial level on any call valuation date other than the final date.

The payout at maturity will be par unless either underlying asset falls by more than 20%, in which case investors will be exposed to any losses of the worse performing fund beyond the 20% buffer.

Underlying

“These are two popular ETFs. Across different channels you see interest for gold miners, which may be a good pick in a sideways market. Biotechnology is a volatile sector but people like the potential reward,” said Matt Rosenberg, sales trader at Halo Investing.

Part of the risk was the low correlation between the two assets, he said, pointing to a one-year correlation coefficient of 0.137. A perfect correlation shows a coefficient of 1.

“At the same time, you’re not exposed to a single stock. This is sector exposure. It’s still steady.”

Fee

The 4% fee “seems like a high price,” he said. But on an annualized basis and over the 7.5 year tenor, it represents approximately 50 basis points per annum.

“It’s not too bad,” he said.

A rule of thumb among registered investment advisers is not to exceed 75 bps per annum.

Short life

The notes however were not designed to trade for the entire term, he noted.

There is a one-year call protection but after that calls can be triggered on a monthly basis.

“It’s very likely that you’re going to get called, probably after just one year. So in a way you shouldn’t be overly worried about the downside. And you can get 8.75% in this scenario, which is still above average,” he said.

Buffer

For investors who may still be worried, however, the structure provides an additional layer of safety with the 20% buffer at maturity.

But how necessary was the downside protection?

“Even without a buffer, this deal would not be hugely risky because it’s a long-dated structure. Over the long term, traditionally volatility shrinks and you should expect growth,” he said.

Following the rules

A market participant said it was unusual to price this type of deal over such a long tenor.

He assumed the structure was the result of a reverse inquiry.

“Certain buysiders don’t allow a barrier at maturity. It has to be a hard buffer. In some cases, the minimum protection has to be 20%. These are the constraints the issuer may have had to deal with,” he said.

Correlation

The structure was designed to appeal to conservative investors.

“It’s a long holding period. You get the 20% buffer. This is for someone who is a little bit nervous about the market,” he said.

The low correlation between the two underlying funds was a risk factor, he conceded.

“It’s also beneficial. The low correlation helps the pricing.”

Even with a weak correlation between the two reference assets, the risk was still contained. It would be different if the funds were inversely correlated, he said.

“It’s still positive. If one goes up, it doesn’t automatically mean the other will go down.”

Even the choice of the underlying could support the assumption that the investor’s need was to play it safe.

“People tend to buy gold looking for a safe haven. The idea may have also been to get a low or negative correlation with the market as a whole,” he said.

Call me

Most of the times though, a client will consider several different sectors or geographic regions.

“Ultimately, the issuer looks into pricing first. Their goal is to accommodate the requests of the client in terms or return, risk and maturity.”

The most likely outcome, he said, agreeing with Rosenberg, is early redemption.

“You have reinvestment risk. But in our current rising rate environment, this is a risk that investors welcome. Having to reinvest at a higher rate is looked as a benefit, not a risk,” he said.

“It’s also looked as a form of protection. Once you’re called, you may have to decide what to do with your money. But you’ve got your money back so at that point, there is no more market or credit risk on the horizon.”

Barclays is the agent.

The notes will price on Thursday and settle on July 31.

The Cusip number is 06746XJV6.

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