Responding to the global uncertainty caused by record world economic growth, tighter US Monetary policy, the possible hard landing of China and record oil prices, ABN AMRO Private Investor Products group has launched its Opus capital protected notes in Hong Kong.
The US Dollar dominated notes were designed by the Dutch group to deliver a minimum return and unlimited upside potential. Unlike the majority of retail notes, ABN AMRO's Opus capital protected notes will be non-market linked, instead relying on the relative performance of a basket of 20 stocks selected from different geographical regions and industry sub-regions.
In total, equities from eight countries and 14 industry sub-groups make up the basket. On the geographic side, listed companies from the US, the UK, Japan, France, Italy, the Netherlands, Germany and Finland made it to the product, which include diverse household names such as AXA, Nokia, Adidas-Salomon and 3M.
At four years, the tenor of the Opus capital protected notes is relatively short and upon maturity, investors will receive 100% capital protection, which is backed up by the bank. The note's minimum coupon of 2.6% will be tabulated at the end of years one, two and three, and if the basket's result is above this minimum return, gives investors upside potential through the inclusion of a dispersion rate multiplied by a 5% component.
ABN AMRO will calculate the dispersion rate on each of the valuation dates (the anniversary of the issue date of the notes) through a five-step process. The first step of the process will consist of a calculation of the performance of each share in the basket. This is followed by the bank determining the average basket return by calculating the average performance of all 20 shares, wherein ABN will then conclude which shares have outperformed the average basket return. Step four, or the determination of the positive dispersed return, is completed when it calculates by how much each of the shares that have outperformed the average basket return, Finally, the dispersion rate is revealed by dividing the sum of the positive dispersed returns by the number of shares in the basket (20).
Upon maturity, the investor receives another chance to bolster returns by the inclusion of an additional bonus that is calculated by multiplying the diversion rate by 300%.
ABN AMRO is confident the upside potential of the opus can become a reality, as it's back-testing methodology of each of the shares between September 1990 to January 2005 over a four-year period returned well above the minimum 2.6% coupon promised and upon maturity returned an average payment of 185% of the amount invested.
According to ABN AMRO, the opus capital protected notes are targeted towards conservative investors seeking regular returns on top of potential gains during the products life on top of 100% capital protection, those with uncertain views of global equity markets and those striving to diversify their portfolios.
The offer period begins on March 2 and runs through to March 23, with the issue date occurring a week later. Maturity will occur on April 6 2009 and minimum subscriptions start at $1,000.
