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Derivatives

Base Metal Notes Shopped To U.S. Retail

Barclays Capital and Lehman Brothers have both launched retail investment notes in the U.S. linked to baskets of base metals.

Barclays Capital and Lehman Brothers have both launched retail investment notes in the U.S. linked to baskets of base metals. The structured notes follow the trend for offering investors more choice of underlying investment, rather than repeating equity-linked offerings with different payoff structures. This move has seen a variety of notes linked to commodity indices, baskets including crude oil, or even agricultural commodity indices (DW, 1/26), but basket plays focused on metals have been less common in the U.S.


According to filing with the Securities and Exchange Commission, the Barclays notes, linked to aluminum, nickel and copper, have a five-and-a-half-year maturity and offer full capital protection, participation in gains over 60% and a minimum return of 60%. If the basket decreases in value, the investor receives capital plus 10%. "Right now, the industrial metals theme is a strong one," said Philippe El-Asmar, head of investor solutions for the Americas in New York. He explained backwardation of the metals referenced in the basket enables the firm to offer attractive payouts to investors.


In contrast, the Lehman notes reference a basket of copper, nickel and zinc and have a three-year maturity. They also feature full capital protection, but with 75% participation in the upside of the basket. Lehman officials could not be reached for comment on the notes by press time.


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