DWS Investment, a mutual fund manager owned by Deutsche Bank, is buying a series of equity call options to help structure two guaranteed five-year funds it launched last week. Markus Klingler, fund manager in Luxembourg, said he is buying five-year call options on the Dow Jones Stoxx 50 for one fund and a five year basket call on the Stoxx 50, the Standard & Poor's 500, and the Nikkei 225 for the other. The two funds should total about EUR200 million (USD176 million), he added. About 15% of the investor's investment goes toward buying options that provide market exposure, while the balance goes toward buying bonds that provide the capital guarantee.
Klingler said it is launching these products now because clients are demanding products that allow upside participation if equity markets recover but provide a safety net if the indices continue to fall. One of the guaranteed products, dubbed DWS Europa Garant, will give investors roughly 53% participation in the Dow Jones Stoxx 50 and the other, named DWS Global Garant, will give investors approximately 56% participation in a basket of world indices. The Dow Jones Stoxx 50 makes up 40% of the basket, the Standard & Poor's 500 makes up another 40%, and the Nikkei 225 makes up the remainder.
The options are at-the-money calls, which mature on March 29, 2005, the same time as the fund. The call option on the Dow Jones Stoxx 50 is struck at Monday's closing price of 3,989.42. The basket call option on the three indices is set at Monday's closing prices for the Stoxx 50 and the S&P 500, respectively, 3,989.42 and 1,145.875. The Nikkei 225 component is set at Tuesday's closing price of 13,124.47.
Klingler said DWS Investment started buying options last week when the fund was launched and will continue to buy options as more investors sign up for the funds. DWS Investment has EUR90 billion under management.
