French broker i-Kapital has launched the Autocall Premium Aout 2018, a 10-year medium-term note (MTN) linked to the Solactive France 40 Equal Weight NTR 5% AR, which reinvests the net dividends detached from the largest 40 French companies while at the same time subtracting a fixed 5% per year.

"Solactive France 40 Equal Weight Index NTR 5% AR is based on an equal weighting strategy seeking to be highly correlated with the Cac 40 index, while being better suited to structuring products aiming at attractive coupons," said Yoni Kabalo (pictured), partner at i-Kapital. "Historically, the equal weighting of a portfolio has managed to outperform a portfolio weighted by market capitalization, with similar risk."

The index is rebalanced each quarter with each of the 40 stocks taken as 2.50%. By neutralizing the effect of market capitalisation of its constituent shares, the index provides a less 'stock-market-oriented' and more qualitative approach.

The strategy of the product itself seeks to maximize the probability of early exit with a quarterly observation and an autocall trigger set in negative territory. If the index is at 96% of its initial level [on the observation dates from the fourth anniversary onwards], the product knocks out, returning the initial capital increased by 1.5% per each quarter elapsed. At maturity, the nominal invested is protected as long as the index has not closed below 60% of its initial level.

"So far this year, we have noticed that some products missed the autocall threshold for very little," said Kabalo. "Seeing that market indices have been evolving in a tight range for more than a year, we feel it appropriate to maximize the early exit probability by adjusting the barrier downwards. The relative levels of the market indices further encouraged us to opt for this type of mechanism."

The quarterly window for early exit gives another attractive edge to the structure, as having that possibility annually is currently not sufficient, according to Kabalo. Indeed, if the window is missed on the valuation date (which can happen for one or two days), the investor would have to wait another year. That would take a bit more time than with a quarterly valuation multiplying the chances for the investor to go out quickly and secure the coupons.

Boosting the frequency of the early redemption dates has continued to be a trend in 2018, according to SRP data. The number of products with annual valuation dates stood for 51% during the first quarter, down from 56% in the same period last year. Semi-annual and quarterly observations recorded an increase: semi-annual (20%, +4%), quarterly (19%, +7%). On the flip side, monthly (1%) and daily (6%) observations lost 3% and 4%, respectively, compared to Q1 2017.

Autocall Premium Aout 2018 is issued by BNP Paribas Issuance the Dutch domiciled vehicle of BNP Paribas which in turn acts as the guarantor. The autocallable MTN will be available for subscription from June 25 and gets a listing on the Luxembourg Stock Exchange.

There are 64 structured products from i-Kapital listed on the SRP France database. The majority of the products, which are issued via Societe Generale, BNP Paribas, Natixis and Goldman Sachs are linked to equity indices. Of these, 19 products are linked to the Eurostoxx 50, while CAC Large 60 EWER, Euro iStoxx Equal Weight Constant 50 and SBF Top 80 EW Decrement 50 Points are featured in 11 products each.

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