Do a lot of reading’ (On how to determine the value of a business)
GAM has relationships with major providers of structured products, which can design tailored structured products around the client’s needs with a minimum of 200,000 EUR, GBP, USD or CHF.
Reverse Convertible Bonds
For example, a ‘Reverse Convertible Bond’ on Spanish utility Iberdrola with a one year maturity and a 5% yield may have a barrier of 60% (dependent upon the volatility at the time) of the stock’s initial value. Thus, the structured product pays 1.25% a quarter (for 4 quarters) and matures at par as long as Iberdrola is trading above the barrier price, which is set 40% below the initial price, at maturity. The coupon is paid irrespective so the underlying has to fall 45% before you start losing money.
Investors can choose their own underlying, including shares, indices, commodities or a mixture. Obviously the higher risk the share (in terms of volatility), the lower the barrier price and the more investments there are the lower barrier price (as there are more things to go wrong).
Therefore, all we need from the investor are the:
- Term (6 months/1 year etc.).
- Underlying (e.g. GlaxoSmithKline/Sainsburys & Tesco/FTSE 100/Gold etc.).
- Target yield (e.g. 3%/4%/5% etc) or barrier level.
Our fees are very transparent. We simply charge a 0.25% transaction fee and a 5bps custody fee (as the product is held in Euroclear). The Swiss bank constructing the structured product charges approximately 1%, which is built into the price of the product.