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Thursday, March 11, 2021
$ 1 Million Bond Portfolio with Upside Participation Notes
*This performance is only observed with historical backtests and not traded by the company.
Risks & Assumptions
The product is based on investing $ 1 million in the below mentioned 4 bonds that are rated investment grade by S & P rating agency. The coupons received owing to these investments is then used to further participate in the upside price movement in the 4 below mentioned US equities. This is achieved by investing in At the Money call strikes (call Strikes that are very near to the current market price) for the respective underlying.
Bond selection is based on appropriate duration risk & coupon rates so as to lower the impact due to interest rate hikes. The bonds are S & P rating A & above (Investment Grade). For the 1 million $ investment, 40 % is allocated to US Treasury maturing < 1 year. The remaining 60 % is allocated to top US corporate names including Apple, Anthem & Abbot Laboratories.
|Portfolio Statistics - Bond|
|Average Maturity||12 Months|
|Weighted Average Coupon||2.12%|
|Gross Annual Coupon||20,725|
|Withholding Tax Rate||30%|
|Net Annual Coupon||$14,508|
|Coupon Reinvestment Portfolio Statistics - Upside Participation Notes|
|Total Participation Notes||4|
|Participation Rate from Current Levels||100%|
|Total Premium Required for Call Participations||$7,630|
|Average Expiry||10 Months|
Net Coupon Available Post Participation - $ 6,877
* The above coupon reinvestments in participation notes are for sample purpose. It would be on client's discretion to alter/tailor the reinvestment portfolio
Bond Portfolio Statistics
|Composition||Mix of 1 Year UST + US Investment Grade Corporate Bonds|
|Sr No||CUSIP||Bond Issue||Last Price (As of 09/03/2021 Market Close)||Expiry||Modified Duration||Coupon Rate||Current Yield||Effective YTM Mid||S&P Rating||Tentative Next Coupon Date||Make Whole Provision Active||Weightage||Effective Allocation (Par Value)||Actual Buying Value - Principal( Amount Required based on the Last Price & Par Value||Annual Coupon||Weighted Average Portfolio Coupon||DVO Measure||Net Change in Bond Postion Holding Valuation in Case of 1% interest rate change|
|1||912828ZA1||US Governnment Treasury Note 1.125 28/02/2022||$101.0015||28/02/2022||0.975||1.125%||1.1400%||0.0912%||Aaa||August'2021||40%||$398,000||$401,986||$4,477.50||0.452%||$39.19||$3,919.36|
|2||037833BF6||Apple 2.7 13/05/2022||$102.7600||13/05/2022||1.54||2.7000%||2.6240%||0.2170%||AA+||May'2021||Yes||20%||$194,000||$199,354||$5,238.00||0.538%||$30.70||$3,070.06|
|3||002824BA7||Abbot Laboratories 2.55 15/03/2022||$102.0100||15/03/2022||0.9936||2.5500%||2.4900%||0.3827%||A||March'2021||Yes||20%||$194,000||$197,899||$4,947.00||0.505%||$19.66||$1,966.33|
|4||94973VAX5||Anthem 3.125 15/05/2022||$103.1200||15/05/2022||1.156||3.1250%||3.0270%||0.3837%||A||June'2021||Yes||20%||$194,000||$200,053||$6,062.50||0.625%||$23.13||$2,312.61|
|- For US bonds , the coupons are paid Semi Annually||Withholding Tax||30%|
|- Intial Margin Requirements for corporate bonds is 50%. This may further vary as per the discretion of platform provider & market volatility||Net Coupons||$14,507.50|
Coupon Reinvestment – Participation Notes Rationale
|Ticker Code||Stock||Last Close (As of 09/03/2021 - US Market Close)||View||Duration (10 Months Expiry)||Upside Pariticpation Rate from Current Level||Knock In Strike||Premium / Unit||Net Premium(1 Lot = 100 Units Exposure)||Rationale||Bloomberg Analyst Recommendation (Buy | Hold | Sell)|
|JPM US Equity||JP Morgan||$151.83||Bullish||January'21, 2022||100%||$150.00||$16.50||$1,650.00||The company's share price have rallied by over 9 % in the current tech led selloff. One of the primary reasons for the rally happens to be rise in US 10 year yields which is supportive for the bank's bottomline. Last month, the stock broke above its previous life time highs. This is in contrast to other major US banks like BoA & Wells Fargo which are still trading below their previous life time highs.||19|7|3|
|CCL US Equity||Carnival Corporation||$27.58||Bullish||January'21, 2022||100%||$27.50||$7.60||$760.00||The stock suffered heavily last year with losses of 55%. However, ever since the vaccination programs have started, the stock along with other reopening theme based stocks have rallied. On YTD basis, the stock is up by 25% indicating strong investor preference for such stocks. While the company has suffered lot of de- growth due to pandemic, it's strong brand presence would ensure the cruise liner benefitting the most from pent up holiday booking demand.||3|10|5|
|ARKK US Equity||ARKK Innovation ETF||$121.75||Bullish||January'21, 2022||100%||$120.00||$24.20||$2,420.00||Investor darling and bet on futuristic & innovative technologies - ARKK ETF has been in news currently for its sizeable fall of 30% since its peak seen in mid February. Led by Tesla's decline , the ETF has also suffered sizeable outflows on account of major correction in tech stocks. While the current selloff has been ascribed to rise in US 10 year bond yields and money rotation back to traditional/cyclical stocks, chances of recovery in such stocks cannot be ruled as markets come to terms with current leg of profit booking in tech stocks.||--N.A--|
|DIS US Equity||Walt Disney Co||$194.51||Bullish||January'21, 2022||100%||$190.00||$28.00||$2,800.00||Another strong brand as a part of reopening portfolio, the stock has broken above its life time high with a breach above $ 200 level. The stock has been rallying since November on back of renewed hopes on post vaccine related reopening & recovery theme. US State of California recently allowed theme parks to open albeit with minimum capacity constraints. This is a huge positive for Disney whose theme park segment has acted as a major drag on the company's balance sheet since last 1 year. Latest earnings for the company beat the analyst expectations with Disney + subscriptions higher than expected.||26|6|2|
Participation Notes Summary
Participation Notes Performance
Participation Notes Payoff
Participation Notes Performance
Risks & Assumptions
Data Source: Bloomberg
Prices & Statistics as of: 09/03/2021 US Market Close
Arun Leslie John
Chief Market Analyst
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