Defensive Autocall
What is a defensive autocall and how would you explain it to a client?
Market risk
Do I have exposure to Atlantic House?
Commonly asked questions
What's my counterparty risk?
The holder of the security will be exposed to the credit risk of the issuer and this security is ranked as Senior Unsecured debt of the issuer.
What's the process for buying at launch?
Typically, orders should be submitted around 3pm on the launch date, ahead of the UK market close. Trade details are confirmed to the buyer’s contact (dealer), who is asked to confirm his intention to the issuer. The trade is then executed with confirmation from issuer to dealer. Atlantic House manages this process. Typically, settlement in the Primary Market is T+10.
The period between execution and settlement is known as the “grey market” during which there is usually no constraint on upsizing notional. Usually, a day or two before settlement the bank will fix the final issue size, which will include some inventory for sale in the Secondary Market. It may also be possible to issue further tranches of shares, subject to demand.
Can I buy more stock after launch?
These securities are not to be traded on an organised exchange. The issuer will use reasonable efforts to quote a price in all market conditions; this has proven to be the case historically. The Bid Price at any time is not determined by the requirement to find a buyer but, rather by a range of market inputs that determine the value of the security’s components. These might include, but are not limited to, interest rates, credit spreads, index performance, dividends and volatility.
Can I sell my investment before maturity?
No, Atlantic House simply acts in the capacity of introducing broker. Your only financial exposure is to the security issuer.
What are the most common mistakes made by investors in these securities?
The securities are dynamic, in that they may change throughout their life. It is imperative therefore, that investors understand their Mark-to-Market exposure, to ensure ongoing suitability within portfolios. Atlantic House provides full support in this area.
Where does it fit in my portfolio?
These securities have a variety of portfolio applications. Generally speaking, they should be allocated to wherever the risk lies. For example, an equity index linked security with risk determined by the FTSE100, should be allocated to UK Equity. It is imperative that investors understand the likely behaviour of this security in a range of market conditions, to ensure continued suitability. Atlantic House provides full support in this area.
Important risk information
The holder of the investments will be exposed to the credit risk of the issuer.
Credit risk
Tax risk
Time horizon
Liquidity risk
The investments will not be traded on an organised exchange. The issuer will use reasonable efforts to quote prices in all market conditions.
Exit risk
The secondary market price of the investments will depend on many factors including, but not limited to, the value and volatility of the underlying index, interest rates, dividend rates, time remaining to maturity and the creditworthiness of the Issuer. Prior to maturity, the price may be less than the amount the holder would have received on maturity of the investment.
The tax treatment of structured products can be complex and tax rates and regulations may change during the term of this investment. Guidance is given here, but if in any doubt Investors should seek their own professional tax advice.
Capital repayment depends on the performance of the underlying; the future performance of which cannot be guaranteed.
Whilst an investor might be happy with the capital erosion prospects at maturity, the reference index/indices may fall throughout the life of the security and the security might fall by more than you would expect.
What is a defensive autocall?
A defensive autocall is a type of structured investment. Autocalls offer the potential of a fixed capital return if the indices to which they are linked are at or above their starting level on given dates. They can also be configured to pay an income. The level the index needs to reach before a return is made typically falls over the life of the autocall. This means a defensive autocall could provide a positive return in a falling market. Whether an autocall redeems on any anniversary of the start date depends on the underlying chosen index being above specified levels on each anniversary, as illustrated.
The features of a defensive autocall
Example:
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The autocall costs the investor 100p on day 1
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The maximum term of the autocall is 6 years
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The potential simple annual return is 7.25%
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Payoff barrier levels reduce 5% each year
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Capital is protected at maturity up to 40% fall in the index
The flow chart illustrates the different possible outcomes for the investment. It shows that this structured investment has a maximum possible life of 6 years, but that it can redeem early on any anniversary of the start date. Whether or not it does depends on the Index being above specified levels on each anniversary, as illustrated.
For example, it shows if:
One year after the start date the Index is above its initial level the structured investment redeems and pays the investor:
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7.25p return
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100p of initial investment
Equalling a total of 107.25p.
Put another way, if after year 1 the Index has risen at all, the investor receives an 7.25% return.
You can follow the flow chart to see all the different possible outcomes and the corresponding minimum Index level required to generate that outcome.
The Index can fall up to 25% from its initial level and will still pay the investor an uncompounded return of 7.25% per annum.
If the Index falls by more than 25% to 40% of its initial level, the investor receives initial investment of 100p only.
However, if the Index falls more than 40% from the initial level by the final observation date, the investor will lose 1p of capital for every 1% the index has fallen from its initial level, unless the structured investment has already redeemed early.
Tom May
CEO & CIO
23 years of experience
15 years in group
Jim May
Fund Manager
14 years of experience
6 years in group
Russ Bubley
Fund Manager
25 years of experience
7 years in group
Dedicated to managing your investment
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Source: Atlantic House
Distributions
Investors who receive distributions from the Fund should be aware that these payments are made from capital, this will limit the potential for capital growth.
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This is a marketing communication.
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A copy of the English version of the Supplement, the Prospectus, and any other offering document and the KIID can also be viewed at www.geminicapital.ie. A summary of investor rights associated with an investment in the Fund is available in English at www.geminicapital.ie.
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A decision may be taken at any time to terminate the arrangements for the marketing of the Fund in any jurisdiction in which it is currently being marketed. Shareholders in affected EEA Member State will be notified of any decision marketing arrangements in advance and will be provided the opportunity to redeem their shareholding in the Company free of any charges or deductions for at least 30 working days from the date of such notification.
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The Fund is not sponsored, promoted, sold or supported in any other manner by Solactive AG nor does Solactive AG offer any express or implicit guarantee or assurance either with regard to the results of using the Index and/or Index trademark or the Index Price at any time or in any other respect. The Index is calculated and published by Solactive AG. Solactive AG uses its best efforts to ensure that the Index is calculated correctly. Irrespective of its obligations towards the issuer, Solactive AG has no obligation to point out errors in the Index to third parties including but not limited to investors and/or financial intermediaries of the Fund. Neither publication of the Index by Solactive AG nor the licensing of the Index trademark for the purpose of use in connection within the Fund constitutes a recommendation by Solactive AG to invest capital in said Fund nor does it in any way represent an assurance or opinion of Solactive AG about any investment in this Fund.
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