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ABN AMRO Turbos
Well prepared active investing
Agenda
Recap:
15 minutes
1. What is a Turbo?
2. What are the most important characteristics of a Turbo?
3. The value of the Turbo
Turbos advanced:
+45 minutes
4. Adjustments to the financing- and stop loss-level
5. Hedging a stock portfolio
6. Neutralize currency fluctuations on stock portfolio
2
1. What is a Turbo?
3
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
4
Invest with your own vision
Turbos can be aquired to benefit from anticipated movements in the value of an
underlying:
To benefit from anticipated increases in the value of an underlying,
investors can buy a Turbo Long
To benefit from anticipated decreases in the value of an underlying,
investors can buy a Turbo Short
5
2. What are the most important
characteristics of a Turbo?
6
The most important characteristics
• Financing level
• The value
• Leverage effect
• Stop loss-level
• Salvage value
7
3. Turbos in practice
8
The value of a Turbo with ratio & exchange rate
The value of a Turbo can be calculated as follows:
Value Turbo Long =
Price of underlying – Financing level
Value Turbo Short =
Financing level – Price of underlying
9
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.
Ratio
The ratio indicates how many
Turbos an investor would normally
have to acquire in order to be fully
invested in the underlying:
Ratio 0.01:
Ratio 1:
Ratio 10:
Ratio 100:
EUR/USD
ING
AEX
CAC40
Exchange rate:
Investors should take into consideration
that 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:
Increase currency: positive impact
Decrease currency: negative impact
10
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)
11
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 (1/1.40))
= EUR 9.10
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 (1/1.40))
= EUR 9.80
12
The value of a Turbo
Turbo Long InBev
Financing level:
40 EUR
Stop-loss level:
42 EUR
InBev Turbo Long
EUR 55
EUR 15
EUR 50
EUR 10
Underlying
Return undelying = +10%
Turbo Long
Return Turbo Long = +50%
13
The value of a Turbo
Turbo Long InBev
Financing level:
40 EUR
Stop-loss level:
42 EUR
InBev Turbo Long
EUR 50
EUR 10
EUR 45
EUR 5
Sous-Jacent
Return undelying = -10%
Certificat Turbo Long
Return Turbo Long = -50%
14
The value of a Turbo
Turbo Long InBev
Financing level:
40 EUR
Stop-loss level:
42 EUR
InBev Turbo Long
EUR 50
EUR 10
EUR 42
EUR 2
Sous-Jacent
Return undelying = -16%
Certificat Turbo Long
Return Turbo Long = -80%
15
Turbos Advanced
4. Adjustments to the financing- and stop loss-level
16
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)
17
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,
• 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.
• Current overnight LIBOR (07/12/2011): 0.62% EUR and 0.15% USD
• TL
2% + LIBOR
(2.62%EUR / 2.15%USD)
• TS
2% - LIBOR
(1.38% EUR / 1.85% USD)
• The stop-loss level for each Turbo is adjusted monthly to accommodate for changes
in the financing level.
18
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.
19
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
20
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 5.60
USD 3
Underlying
Financing level
Value Turbo Long
Pre-dividend
USD 360
USD 320
EUR 5.60
Ex-dividend
USD 357
USD 317
EUR 5.60
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 7.70
USD 3
Underlying
Pre-dividend
USD 360
USD 415
EUR 7.70
Ex-dividend
USD 357
USD 412
EUR 7.70
21
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.
22
Adjustments for the effect of futures
• As expiration of the future contract approaches, the future price normally moves
towards the spot price.
Backwardation
The future price will move up towards
the spotprice. Favorable for the Turbo
Long
Contango
The future price will move down
towards the spotprice. Favorable for
the Turbo Short
23
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
USD 23
USD 17
1
not applicable
USD 6
USD 24
Underlying
Financing level
Value Turbo Long
Expiring future
contract
USD 23
USD 17
USD 6
New future
contract
USD 24
USD 18
USD 6
Future effect Turbo Short
Expiring future contract
Financing level Turbo Short
Ratio
Exchange rate
Value Turbo Short
New future contract
USD 23
USD 30
1
not applicable
USD 7
USD 24
Underlying
Financing level
Value Turbo Short
Expiring future
contract
USD 23
USD 30
USD 7
New future
contract
USD 24
USD 31
USD 7
25
Turbos Advanced
5. Hedging a stock portfolio
26
Hedging a stock portfolio
• Stock portfolios can be hedged by using Turbos Short, as this Turbo will increase in value as
the underlying stock decreases in value
• In order to determine how many Turbos Short are required to hedge a stock portfolio, we can
use the following formula:
Number of Turbo’s = (Position to be hedged / price of underlying) x ratio
• The number of Turbos required is independent of the stop loss-level of the chosen Turbo. The
stop loss-level of the chosen Turbo will, however, impact:
• The risk of being un-hedged
• The initial investment required
27
Hedging a stock portfolio
• Should we, for example, have a stock portfolio which tracks the AEX-index and the AEX-index
is pricing at 305, we would be able to hedge this portfolio with 820 Turbos Short on the AEXindex:
Number of Turbos
= (25.000 / 305) x ratio
= 819.67
= 820
• Fixed number of Turbos needed
• The cost for the hedge depends on the strike of the Turbo
28
Hedging a stock portfolio
• In this case, we could use the following Turbo:
Price AEX-index
305 points
Financing level
345 points
Stop loss-level
336
Ratio
10
Value Turbo Short
29
Hedging a stock portfolio
• In this case, we could use the following Turbo:
Price AEX-index
305 points
Financing level
345 points
Stop loss-level
336
Ratio
10
Value Turbo Short
What is the amount necessary
in order to hedge 25.000 EUR?
30
Hedging a stock portfolio
• In this case, we could use the following Turbo:
Price AEX-index
305 points
Financing level
345 points
Stop loss-level
336
Ratio
10
Value Turbo Short
EUR 4
• The required investment can then be calculated as follows:
Required investment
= Number of Turbo’s x Value Turbo*
= 820 x 4
= EUR 3.280
31
Hedging a stock portfolio
Portfolio:
Value stock portfolio
EUR 25.000
Value Turboposition
EUR 3.280
Total
EUR 28.280
32
Scenario 1: AEX declines with 10% to 274.50
Value stock portfolio
?
Value Turboposition
?
Total
?
33
Scenario 1: AEX declines with 10% to 274.50
Value stock portfolio
EUR 22.500 (= 25.000 - 10%)
Value Turboposition
EUR 5.781 (= 820 x 7.05)
Total
EUR 28.281
1. Portfolio: 25.000 EUR x 0.9 = 22.500 EUR
2. Turbo: (345 – 274.50) / 10 = 7,05 EUR
7.05 EUR x 820 Turbos = 5.781 EUR
34
Hedging a stock portfolio
Scenario 2: AEX increases with 10% to 335.50
Value stock portfolio
EUR 27.500 (= 25.000 + 10%)
Value Turboposition
EUR 779 (= 820 x 0.95)
Total
EUR 28.279
Please note:
•
•
•
The hedge is only effective until the moment the stop loss-level of the Turbo has been hit
Any changes in the portfolio value will require a change in the Turboposition in order for the hedge to remain
effective
The scenarios do not take into account transaction costs, financing costs and the difference between the bid and
offer price. The examples are based on assumptions and have been included for illustration purposes only. These
examples are not representative of future results and no rights can be derived therefrom.
35
Turbos Advanced
6.Neutralize currency fluctuations on stock portfolio
36
Neutralize currency fluctuations on stock portfolio
• You believe in the future of the company Apple and decide to buy 1000
shares in Apple Inc at a value of 390 USD a share.
• You do believe that Merkel and Sarkozy will find a solution for the
problems in the Euro zone.
• You do want to hedge your current portfolio against potential los giving
currency movements.
37
Neutralize currency fluctuations on stock portfolio
• You can hedge your portfolio against potential negative currency movements.
• It is necessary to decide how many Turbos are needed to cover the entire portfolio by
using the following formula:
Total number of Turbos = (Total amount / Financing level) x ratio
• The Financing level is a key factor in determining the number of Turbos needed for
the hedge structure.
• Use a Turbo Long to cover against a rising value of the euro.
38
Neutralize currency fluctuations on stock portfolio
• We do want to cover 390.000 USD against potential negative EUR/USD currency
movements.
EUR/USD exchange rate
1.40
Financieringsniveau
1,33
Stop loss-niveau
1,35
Ratio
0,01
Waarde Turbo Short
EUR 5
• (1.40 – 1.33)
0.01 x 1.40
=
5 EUR
39
Neutralize currency fluctuations on stock portfolio
• Total number of Tubos needed for this hedge:
= (Amount / Financing level) x ratio
= (390.000 / 1.33) x 0,01
= 2932.33
= 2932
• Investment needed:
= Number of Tubos x Value of the Turbo
= 2932 x EUR 5
= EUR 14.660 EUR
Cover a position of 390.000 USD with 14.660 EUR.
40
Neutralize currency fluctuations on stock portfolio
Value portfolio in USD
USD 390.000
Value portfolio in EUR
EUR 278.571(=390.000 / 1.40)
Value Turbo hedge
EUR 14.660 (= 2.932 * EUR 5)
Total value in EUR
EUR 293.231 EUR
Please note:
•
•
•
The hedge is only effective until the moment the stop loss-level of the Turbo has been hit
Any changes in the portfolio value will require a change in the Turbo position in order for the hedge to
remain effective
The scenarios do not take into account transaction costs, financing costs and the difference between the
bid and offer price. The examples are based on assumptions and have been included for illustration
purposes only. These examples are not representative of future results and no rights can be derived there
from.
41
Neutralize currency fluctuations on stock portfolio
Scenario 1: EUR/USD goes from 1,40 to 1,45; dollar depreciates against euro
Waarde dollarpositie in USD
USD 390.000
Waarde dollarpositie in EUR
EUR 268.965,52
Waarde Turbopositie
EUR 24.246,96 (= 2.932 x EUR 8,28)
Totaal
EUR 293.242,48 (11.48 EUR difference)
Scenario 2: EUR/USD goes from 1,40 to 1,35; euro depreciates against dollar
Waarde dollarpositie in USD
USD 390.000
Waarde dollarpositie in EUR
EUR 288.888,89
Waarde Turbopositie
EUR 4339.36 (= 2.932 x EUR 1.48)
Totaal
EUR 293.228,25 (2.75 EUR difference)
42
Risks
43
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.
•
Liquidity risk: Investors may be unable to trade in a Turbo in the event of a malfunction in the trading system of
Goldman Sachs or the exchange/platform on which the Turbo or the underlying is traded.
•
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
44
Stop loss risk
RISK REAL TIME
-EXCEL FILE-
45
What makes the ABN AMRO
Turbo unique?
46
What makes the ABN AMRO Turbo unique?
• Improved stop loss times for Turbos on commodities and bonds
• Improved stop loss prices for Turbos on currency and commodities
• Quick publication of salvage values
• Competitive bid/offer spreads
• Large bid/offer volumes
• Daily call right
• ABN AMRO Turbo App + TA
• ABN AMRO Bank N.V. as issuer
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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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