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Commodity Investments

Know-How - Participation

There’s lots of talk about commodities, of the price of crude oil rising one day and falling the next, or how China is hoarding industrial metals like copper or aluminum, but few practical solutions an investor can rely on to efficiently invest in commodities.

Whatever the reason behind the nominal price variations, unbiased advice proposing real solutions about investing in commodities is even scarcer. Most of the time, bankers propose products that are based on the Goldman Sachs Commodity Index (GSCI), or the Dow Jones AIG index (DJAIG), both of which have changed ownership recently. Goldman sold the GSCI to S&P, who rebranded it S&PGSCI, and UBS bought the DJAIG and rebranded it DJUBS. Changing the name did not improve the performance of either index, as the investment methodology remained the same: through front-months investments, which is often a disadvantage for the investor.

Multi Bonus Certificates

Know-How - Participation

Multi bonus certificates are identical structures to bonus certificates, except that they are based upon several underlying assets and that the payoff is based upon the worst performing one. The name is somewhat misleading, as it suggests that the product is based on a basket, hence we will call them for what they are henceforth: worst-of bonus certificates. Indeed, an embedded worst-of option makes sure that if only one of the included assets breaks through the predefined barrier, the protection as well as the bonus are disabled.

Airbag Certificates

Know-How - Participation

Airbag certificates fully participate to the upside price performance of an underlying asset and have a certain amount of downside protection down to which the investor doesn’t incur any losses. In other words, as long as the underlying asset doesn’t lose more than a predefined level, the capital is 100% protected. That level is called the airbag, named after the automobile safety system placed in the steering wheel that lessens the injuries in case of an accident. Below the airbag level, the product starts to decrease in value at a leveraged pace compared to the underlying asset. However, it stays above the underlying asset until the asset loses all value. In essence, the product is not unlike Bonus Certificates, with the one big difference that the Airbag doesn’t knock-out. It stays until the maturity of the product no matter what. Hence, there is no gap (no vertical line in the payoff diagram) as in the Bonus certificate.

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Participation

Commodity Investments

Multi Bonus Certificates

Airbag Certificates

Bonus Certificates

Tracker Certificates

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