Transcript ABN AMRO Turbos Well prepared active investing

ABN AMRO Turbos
Well prepared active investing
Agenda
Turbo Basics
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The ABN AMRO Turbo
The most important characteristics of a Turbo
Turbo vs. Options vs. Sprinters vs. Turbo
Trading and costs
The most important risks
What makes the ABN AMRO Turbo unique?
Turbo Advanced
• Hedging with Turbos
Stock portfolio
Currency exposure
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Turbo Basics: The ABN AMRO Turbo
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The ABN AMRO Turbo
The ABN AMRO Turbo is an investment product that offers investors an ability to:
• Invest with a personal vision
• Invest at a personal acceleration
• Invest in a personal market of choice
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The ABN AMRO Turbo
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Internationally known as mini-futures
Originally ABN AMRO product allocated to RBS
The new Turbo re-launched by the new ABN AMRO
Used for both investment and hedging purposes
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The ABN AMRO Turbo
• Live since October 2010
• More than 1000 Turbo’s live
• Covering approximately 111 underlying values
• Across 5 asset classes
• Euro denominated and exchange traded on Euronext Amsterdam
• Second in market share turnover in the Netherlands
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Turbo Basics: What are the most
important characteristics of a Turbo?
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The most important characteristics
• Leverage effect
• Financing level
• The value
• Stop loss-level
• Salvage value
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The leverage effect
The leverage effect causes the value of a Turbo to fluctuate at a faster rate than the
value of the underlying. This is an important characteristic of Turbos.
Example Turbo Long leverage rate 5
EUR 30
EUR 10
EUR 25
EUR 5
Underlying
Return Underlying = 20%
Turbo Long
Return Turbo Long = 100%
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The leverage rate
• The leverage rate indicates how much faster the value of a Turbo accelerates
compared to the value of the underlying.
• The higher the leverage rate, the greater the change in response to a movement in
the underlying, both positive and negative.
Example leverage effect
Leverage
rate Turbo
% Change in
Underlying value
% Change in
Turbo value
4
2%
8% (4 x 2%)
6
10%
60% (6 x 10%)
10
6%
60% (10 x 6%)
15
9%
135% (15 x 9%)
25
4%
100% (25 x 4%)
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The leverage rate
The leverage rate depends on the price of the underlying at the time of purchase
(reference price) and on the financing level of the Turbo:
Leverage rate
Turbo Long =
Leverage rate
Turbo Short =
Reference price of underlying
(Reference price of underlying – Financing level)
Reference price of underlying
(Financing level – Reference price of underlying)
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Example: The leverage rate
Leverage rate Turbo Long
Reference price of underlying
Financing level Turbo Long
Leverage rate Turbo Long
EUR 15
EUR 10
= Reference price / (Reference price – Financing level)
= EUR 15 / (EUR 15 – EUR 10)
=3
Leverage rate Turbo Short
Reference price of underlying
Financing level Turbo Short
Leverage rate Turbo Short
EUR 20
EUR 25
= Reference price / (Financing level – Reference price)
= EUR 20 / (EUR 25 – EUR 20)
=4
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The leverage rate
• Because the reference price of an underlying changes continuously, the
leverage rate of a Turbo can only be set when it is acquired.
• Once the Turbo has been acquired, the leverage rate will remain constant for
the investment period, assuming a constant financing level.
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Leverage rate and financing level
The leverage effect is enabled by the financing level:
Financing level Turbo Long
• A Turbo Long can be compared with the
purchase of an underlying, but the investor
invest only a fraction of the value of the
underlying.
Financing level Turbo Short
• A Turbo Short can be compared with the sale
of the underlying, for which the bank will take
a short position for the investor in the
underlying.
• The remaining amount will be provided for by
the bank, over which the investor pays
financing interest
• To cover the risks of a short position, the
investor is requested to make a deposit
(value of the Turbo)
• The amount over which the interest is
calculated, is called the financing level of a
Turbo Long
• The investor generally receives interest over
the combined sum of the value of the Turbo
and the proceeds of the short position
• The amount over which the interest is
calculated, is called the financing level of a
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Turbo Short
The value of a Turbo
The value of a Turbo is in most cases equal to the difference between the price of
the underlying and the financing level
Value Turbo Long = Price of underlying – Financing level
Value Turbo Short = Financing level – Price of underlying
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Example: the value of a Turbo Long
Example 1
Price of underlying
Financing level
Value Turbo Long
EUR 15
EUR 10
= Price of underlying – Financing level
= EUR 15 – EUR 10
€8
€5
= EUR 5
€18
€15
Example 2
Price underlying
Financing level
Value Turbo Long
€10
EUR 18
EUR 10
= Price of underlying – Financing level
= EUR 18 – EUR 10
= EUR 8
Price of underlying
TL Financing level
TL Value
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Example: the value of a Turbo Short
Example 1
Price of underlying
Financing level
Value Turbo Short
EUR 15
EUR 20
= Financing level – Price of underlying
= EUR 20 – EUR 15
€5
€8
= EUR 5
€20
Example 2
Price of underlying
Financing level
Value Turbo Short
EUR 12
EUR 20
= Financing level – Price of underlying
= EUR 20 – EUR 12
= EUR 8
€12
€15
TS Financing level
Price of underlying
TS Value
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Ratio and exchange rate
In certain cases, investors should also take a ratio and an exchange rate into
consideration when calculating the value of a Turbo.
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The ratio of a Turbo
The ratio indicates how many Turbos an investor would normally have to acquire in
order to be fully invested in the underlying:
• A Turbo with a ratio of 1, means that an investor will have to acquire 1 Turbo in order to
be fully invested in the underlying.
• A Turbo with a ratio of 10, means that an investor will have to acquire 10 Turbos in order
to be fully invested in the underlying.
• A Turbo with a ratio of 0.1, means that an investor will have to acquire ‘0.1 Turbos’ in
order to be fully invested in the underlying. One Turbo thereby gives an entitlement of
10 in the underlying
• A Turbo with a ratio of 0.01, means that an investor will have to acquire ‘0.01 Turbos’
in order to be fully invested in the underlying. One Turbo thereby gives an entitlement
of 100 in the underlying
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The exchange rate effect
ABN AMRO Turbos are listed in euros. Some underlyings values may, however, be listed in
another currency. To calculate the value of a Turbo on such underlyings, investors should take
the exchange rate into consideration:
• An increase in the value of the underlying currency versus the euro can have a positive
effect on the value of the Turbo.
• A decrease in the value of the underlying currency versus the euro can have a negative
effect on the value of the Turbo.
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The value of a Turbo with ratio & exchange rate
When the ratio and exchange rate are taken into consideration, the value of a Turbo can be
calculated as follows:
Value Turbo Long =
Value Turbo Short =
(Price of underlying – Financing level)
(Ratio x Exchange rate)
(Financing level – Price of underlying)
(Ratio x Exchange rate)
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Example: The value of a Turbo with ratio & FX
Value Turbo Long
Price of underlying
Financinglevel Turbo Long
Ratio
EUR/USD exchange rate
Value Turbo Long
USD 360
USD 295
10
1.40
= (Price of underlying – Financing level) / (ratio x exchange rate)
= (USD 360 – USD 295) / (10 x 1.40)
= EUR 4.64
Value Turbo Short
Price of underlying
Financinglevel Turbo Short
Ratio
EUR/USD exchange rate
Value Turbo Short
USD 2800
USD 3500
100
1.40
= (Financing level – Price of underlying) / (ratio x exchange rate)
= (USD 3500 – USD 2800) / (100 x 1.40)
= EUR 5
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Stop loss-level and salvage value
• Turbos are open-ended investment instruments and as such Turbos do not have a
maturity date.
• However, each Turbo has a stop loss-level, which ensures that an investor can
never lose more than the initial investment.
• When the stop loss-level has been reached, the Turbo will be terminated and the
position in the Turbo will be liquidated.
• In most cases, investors will receive a salvage value.
• The salvage value is equal to the difference between the financing level and the
average price at which the Turbo is liquidated, taking the ratio and exchange rate
into consideration.
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Adjustments to the financing- and stop loss-level
PLEASE NOTE - the financing level and stop loss-level can change due to any of the
following factors:
• Adjustments for the financing costs and –revenues
• Adjustments for the effect of dividend
• Adjustments for the effect of futures
• Adjustments for the effect corporate actions (example: stock split)
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To summarize:
• The leverage effect causes the value of a Turbo to fluctuate at a faster rate than the
value of the underlying
• The leverage rate comes into existence because a client invests only a fraction of the
underlying, while the remainder is financed by ABN AMRO
• The value of a Turbo can be calculated directly from the value of the underlying and
the financing level
• The stop loss-level ensures that an investor can never lose more than the initial
investment
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www.abnamromarkets.nl/turbo
Turbo Basics: Turbo vs. Options vs.
Sprinters vs. Turbo
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Turbo vs. Option
Turbo
Optie
Time value
Not applicable
Applicable
Volatility premium
Not applicable
Applicable
Maturity
Open end with stop loss
Closed end
Contract size
Per 1
Per 100
Possibilities
Long, Short
Call, Put and writeable!
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Turbo vs. Sprinter vs. Turbo
ABN AMRO Turbo
ING Sprinter
RBS Turbo
Issuer
ABN AMRO
ING
RBS
Financing
o/n Libor
o/n interest(?)
o/n interest(?)
Stop loss-times
Commodities & Bonds from
09:05 – 20:00; others when
markets are open
When underlying market is
open
When underlying market is
open
Stop loss-prices
Commodities & FX on midprice; all others on bid or ask
(depending on Long or Short)
Bid or ask, depending on
Long or Short
Bid or ask, depending on
Long or Short
Bid/offer spread AEX
1 cnt
2 cnt
1 cnt
Bid/offer sizes AEX
200.000 / 200.000
50.000 / 50.000
100.000 / 100.000
Stop loss
adjustments
- 15th each month
- On ex-dividend date for both
stocks and indices
- On future roll date
- 15th each month
- On ex-dividend date for
both stocks
- On future roll date
- 15th each month
- On ex-dividend date for
both stocks
- On future roll date
‘Limited’ available
No
Yes
No
Call right
Daily
Yearly
Yearly
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Turbo Basics: How can Turbos be
traded and what are the costs?
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Liquidity of ABN AMRO Turbos
• ABN AMRO Turbos are listed on Euronext Amsterdam by NYSE Euronext.
• Turbos can therefore be traded during exchange hours, from 09:05 to 17:30 Central
European Time (CET).
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Identifying ABN AMRO Turbos
• ABN AMRO Turbos are identified by means of an ISIN-code, which will remain
unchanged during the life of the Turbo.
Example 1: NL0009648187
Example 2: NL0009650753
• The name of a Turbo furthermore indicates the underlying, the stop loss-level and
whether it concerns a Turbo Long or Turbo Short.
Example 1: ABN Apple TL 320
Example 2: ABN Apple TS 395
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Costs associated with Turbos
The following costs may be associated with Turbos:
•Spread: size of the spread is mainly linked to the liquidity of the underlying.
•Financing costs: Financing costs and financing revenues are settled with the investor on a
daily basis by adjusting the financing level with the cost or revenue amount.
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Not applicable on intra-day positions.
Financing costs Turbo Long = O/N LIBOR + 2%;
Financing revenues Turbo Short = O/N LIBOR – 2%
Financing costs for both Turbos Long and Turbos Short on futures = 2%
•Transaction costs: Depending on the bank or broker, investors may also be charged a
transaction fee.
•Taxes: The investor may be required to pay taxes over the Turbo investment that cannot be
withheld by ABN AMRO.
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Turbo Basics: What are the most
important risks of a Turbo?
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Most important risks
• Turbos are high risk investment products that are only suitable for experienced and
active investors with a strong risk appetite.
• Before investing in Turbos investors should be aware of, and fully understand, all the
risks involved with investing in this product, such as:
•
Leverage risk: An investment in Turbos contains a higher risk than a direct investment in an underlying because
the leverage effect causes the value of the Turbo to fluctuate at a faster rate than the value of the underlying.
•
Stop loss risk: A Turbo may expire and become worthless if the stop-loss level has been hit or breached. In such
cases, investors may suffer a total loss of the capital invested.
•
Exchange rate risk: The value of a Turbo may be influenced by fluctuations in the currency of denomination of the
underlying, should this currency be different from that of the Turbo.
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Liquidity risk: Investors may be unable to trade in a Turbo in the event of a malfunction in the trading system of
Goldman Sachs, Euronext Amsterdam, or the exchange on which the underlying is traded.
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Credit risk: Investors in ABN AMRO Turbos are exposed to the credit risk of ABN AMRO Bank N.V.
• Please read the prospectus, supplements and final terms for a complete description of the
risks involved with Turbo investments
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Turbo Basics: What makes the
ABN AMRO Turbo unique?
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ABN AMRO Turbo Apps
ABN AMRO Turbo Apps
www.abnamromarkets.nl/turbo
www.abnamromarkets.nl/turbo
www.abnamromarkets.nl/turbo
De ABN AMRO Turbo Tip
Appendix
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Ajustments for financing costs and -revenues
• Investors are charged interest and a 2% fee over the financing level of a Turbo
Long, also referred to as financing costs, by increasing the financing level of the
Turbo Long on a daily basis. Assuming equal market circumstances, the value of a
Turbo Long will slowly decrease.
•
Turbo Short investors generally receive interest and are charged a 2% fee over the
sum of the value of the Turbo and the short position, also known as financing
revenues. These revenues are remunerated to the investor by increasing the
financing level with these revenues daily. Assuming equal market circumstances, the
value of a Turbo Short will slowly increase.
• The stop-loss level for each Turbo is adjusted monthly to accommodate for changes
in the financing level.
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Adjustments for the effect of dividends
• Some underlyings issue dividends. Dividend payments will, under equal market
circumstances, lead to a proportional decrease in the price of the underlying.
• To keep the value of the Turbo dividend-neutral, the financing level of the affected
Turbos will be adjusted by the net dividend before the opening of the exchange on the
ex-dividend date.
• For Turbos on Indices, the subtraction is done by the net amount, corrected for the
weighting of the dividend-paying company in the Index.
• To accommodate the changes in the financing level, the stop-loss level will also be
adjusted on ex-dividend dates.
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Example: Adjustments for the effect of dividends
Dividend effect Turbo Long
Price of underlying
Financing level Turbo Long
Ratio
Exchange rate
Value Turbo Long
Net dividend
EUR 15
EUR 10
1
not applicable
EUR 5
EUR 1
Underlying
Financing level
Value Turbo Long
Pre-dividend
EUR 15
EUR 10
EUR 5
Ex-dividend
EUR 14
EUR 9
EUR 5
Financing level
Value Turbo Short
Dividend effect Turbo Short
Price of underlying
Financing level Turbo Short
Ratio
Exchange rate
Value Turbo Short
Net dividend
EUR 15
EUR 22
1
not applicable
EUR 7
EUR 1
Underlying
Pre-dividend
EUR 15
EUR 22
EUR 7
Ex-dividend
EUR 14
EUR 21
EUR 7
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Example: Adjustments for the effect of dividends
Dividend effect Turbo Long
Price of underlying
Financing level Turbo Long
Ratio
Exchange rate
Value Turbo Long
Net dividend
USD 360
USD 320
10
1.40
EUR 2.86
USD 3
Underlying
Financing level
Value Turbo Long
Pre-dividend
USD 360
USD 320
EUR 2.86
Ex-dividend
USD 357
USD 317
EUR 2.86
Financing level
Value Turbo Short
Dividend effect Turbo Short
Price of underlying
Financing level Turbo Short
Ratio
Exchange rate
Value Turbo Short
Net dividend
USD 360
USD 415
10
1.40
EUR 3.93
EUR 3
Underlying
Pre-dividend
USD 360
USD 415
EUR 3.93
Ex-dividend
USD 357
USD 412
EUR 3.93
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Adjustments for the effect of futures
• Certain Turbos are issued with a future contract as underlying.
• Future contracts are standardized contracts between two parties to buy or sell a
specified quantity of a specified asset at a specified future date at a price agreed today
(the future price).
• Future contracts are generally traded at a discount or premium to the spot price of
the underlying of the future contract:
•
•
Contango is a situation in which the future price exceeds the spot price, often due to the
cost of storing and insuring the underlying
Backwardation is a market condition in which a future price is lower in the distant delivery
months than in the near delivery months. This is said to occur due to insufficient supply in
the corresponding spot market.
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Adjustments for the effect of futures
• As expiration of the future contract approaches, the future price normally moves
towards the spot price.
• In a backwardation situation, one assumes that the future price will move up
towards the spotprice. One can benefit from this expected movement by acquiring a
Turbo Long
• In a contango situation, one assumes that the future price will move down towards
the spotprice. One can benefit from this expected movement by acquiring a Turbo
Short
Contango
Price
Price
Backwardation
Time
Time
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Adjustments for the effect of futures
• Futures have an expiration date (strike date) on which settlement of the underlying
contract is required through either physical delivery or cash settlement.
• To prevent settlement of the underlying and to ensure continuation of the Turbo, future
contracts are rolled prior to expiration by selling the expiring contract and acquiring the
succeeding (most liquid) contract.*
• Price differences may exist between futures with different strike dates when future contracts
are rolled.
• To keep the value of the Turbo neutral for potential price differences upon the future roll, it is
possible that the financing level and stop loss-level of a Turbo on a future will be adjusted
on the future roll date
*The actual underlying future of a Turbo and the future roll-date can be found under
product characteristics on www.abnamromarkets.nl/turbo
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Example: Adjustments for the effect of futures
Future effect Turbo Long
Expiring future contract
Financing level Turbo Long
Ratio
Exchange rate
Value Turbo Long
New future contract
EUR 23
EUR 17
1
not applicable
EUR 6
EUR 24
Underlying
Financing level
Value Turbo Long
Expiring future
contract
EUR 23
EUR 17
EUR 6
New future
contract
EUR 24
EUR 18
EUR 6
Future effect Turbo Short
Expiring future contract
Financing level Turbo Short
Ratio
Exchange rate
Value Turbo Short
New future contract
EUR 23
EUR 30
1
not applicable
EUR 7
EUR 24
Underlying
Financing level
Value Turbo Short
Expiring future
contract
EUR 23
EUR 30
EUR 7
New future
contract
EUR 24
EUR 31
EUR 7
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Example: Adjustments for the effect of futures
Future effect Turbo Long
Expiring future contract
Financing level Turbo Long
Ratio
Exchange rate
Value Turbo Long
New future contract
USD 115
USD 80
10
1.40
EUR 2.50
USD 114
Underlying
Financing level
Value Turbo Long
Expiring future
contract
USD 115
USD 80
EUR 2.50
New future
contract
USD 114
USD 79
EUR 2.50
Financing level
Value Turbo Short
Future effect Turbo Short
Expiring future contract
Financing level Turbo Short
Ratio
Exchange rate
Value Turbo Short
New future contract
USD 115
USD 155
10
1.40
EUR 2.86
USD 114
Underlying
Expiring future
contract
USD 115
USD 155
EUR 2.86
New future
contract
USD 114
USD 154
EUR 2.86
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Securities Law Disclaimer
ABN AMRO Bank N.V. (‘ABN AMRO’) is not a registered broker-dealer under the U.S. Securities Exchange Act of 1934, as amended
(the "1934 Act") and under applicable state laws in the United States. In addition, ABN AMRO is not a registered investment adviser
under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and
under applicable state laws in the United States. Accordingly, absent specific exemption under the Acts, any brokerage and
investment advisory services provided by ABN AMRO, including (without limitation) the products and services described herein are
not intended for U.S. persons. Neither this document, nor any copy thereof may be sent to or taken into the United States or
distributed in the United States or to a US person.
Without limiting the generality of the foregoing, the offering, sale and/or distribution of the products or services described herein is not
intended in any jurisdiction to any person to whom it is unlawful to make such an offer, sale and/or distribution. Persons into whose
possession this document or any copy thereof may come, must inform themselves about, and observe, any legal restrictions on the
distribution of this document and the offering, sale and/or distribution of the products and services described herein. ABN AMRO can
not be held responsible for any damages or losses that occur from transactions and/or services in defiance with the restrictions
aforementioned.
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