Wednesday was boring, Thursday was exciting and today is back to boring. I was looking for an IPO that I thought contained the word Elk but instead found a type of structured product that I think I recall first hearing about in 1993 or 1994 called ELKs. They are some type of hybrid product that gives the potential for some of the gain of an underlying common stock and a decent yield. I'm not an expert on the ins and outs of these but you get the idea.
One thing lead to another and I found myself at the Structured Products page at the Amex web site. There was an incredibly long list of different issues. Conceptually these sound great. For example there is an ELK for Yahoo (it expires next week do not buy it!). It was issued last June at $10 with a 10% yield and it looks like it will mature at $10, but again I do not know all the particulars. The point is that the idea, taking a bigger picture look, of maybe getting 25% of a stock's upside over a 5 or 10 year period plus some sort of apples to apples treasury equivalent yield as well sound good to me. Obviously if the stock went down this type of hybrid would drop too.
The role for something like this would be to reduce beta but have the chance for a good, not great, total return, relatively speaking. Also obvious is that this type of product would get left way behind in a 2003 type rally and this type of product would not be a substitute for equities.
I did not look at every issue on the list but I did not find any that looked good. Does anyone know of any of these products that they think are worth looking at? I know quite a bit about principal protected notes that are tied to a broad based index. I am not a fan of those at all but if you know of any that are linked to a common stock or a sector that has a decent yield and matures further out than one year please let me know.
At this point I am just exploring the concept. I have not made any judgment about this (except the principal protected notes I described above).
Also I could not work this in earlier but Yahoo is a client and personal holding.
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2 comments:
Roger - me thinks you might be talking about an ELN - equity linked note. See the link below from the Investopedia website:
http://www.investopedia.com/terms/e/equity-linkednote.asp
If this product is what I think it is, there could be some potential market risk if equities go into a tail spin with companies issuing earnings warnings to the downside.
The notes would go down in tandem with the underlying stock, which thereby reduces the note's appeal despite having a high yield.
IMHO, I would think investors are better served by looking abroad and investing in high-beta stocks with decent dividend yields in countries with no expectations for GDP growth (minimize downside currency risk to principal since investor expectations are so low).
As a side note, my dad lives out in Arizona, so I can empathize with your concern for safety. Be well...
There's a web site devoted to these products:
http://www.LowRiskStrategies.com/
It looks interesting.
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