US wrap: Wells Fargo basket gives exposure to global funds

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Wells Fargo product captures global returns

Although volumes have trailed off again some interesting products can be found among the few on offer in the latest issuance, notably one from Wells Fargo that is based on four funds offering exposure to the US, other developed markets and emerging markets.

The three-and-a-half-year accelerated growth product offers 125% participation in a basket of the iShares MSCI EAFE Index Fund (20%), iShares MSCI Emerging Markets Index Fund (20%), iShares Russell 2000 Index Fund (15%), SPDR S&P 500 exchange-traded fund (45%). The exposure is capped at 37–43%.

The participation rate is low compared to most accelerated growth products, which usually offer 200% participation, though 300% is common. However, several accelerated growth products in recent issuances have had participation rates of 150%.

The product has a 15% downside buffer, which, if breached, means capital will be lost at the rate of 1:1.

Despite the low participation rate, the ability to outperform the underlying funds means the product scores well, achieving an overall score of 8 and a riskmap score of 3.2.

UBS has worked its way back into the issuance over the past two days after a period of absence, although it has never been one of the more frequent players. The bank's latest products are based on Dow Chemical and Caterpillar, two companies that have had good news in the past week. Dow's outlook was upgraded from stable to positive by ratings agency Standard & Poor's, and Caterpillar is expanding its business by building another manufacturing plant.

The six-month Dow product pays an annual rate of 13.15%, with an 80% barrier after which capital is lost at the rate of 1:1. The one-year Caterpillar product pays an annual return of 10%, with the same barrier and capital loss.

Details of the latest issuance are available here

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