U.S. firms Merrill Lynch and Claymore Investments are dominating non-principal-protected securities in the Canadian market, according to the National Post. The products offer retail investors an enhanced return from an investment in a basket of stocks and it are expected to become even more popular next year.The two firms are set to wrap up their latest offering in two days. Tomorrow, the Merrill Lynch Claymore Global Fundamental Index Accelerator will close, about six weeks after the first version of the product wrapped up a similar offering.
The first version raised $30 million and offered investors a so-called 150% participation from an investment in three indexes developed by Claymore. One index is Eurozone, another is based on the Japanese index and the other is based on the Hong Kong/China index.
The newest product is based on three Claymore indexes and each of the markets received one-third of the proceeds. Investors were offered either a 135% or a 155% participation, which means they gained more than they normally would have had they just invested in the three indexes.
There are three key elements to the investment-management process. Part of the proceeds is invested in a zero-coupon bond and the other part is used to buy call options on the underlying indexes. Also, the issuer raises some extra capital by selling a put option on a particular index or on the series of indexes on which product is based. Once the three steps have been taken, the manager does nothing else, other than implement a currency hedge.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.