Revolutionary “Star Feature” enhances autocall returns

As investment banks and distributors strive to increase product appeal and potential returns for investors, they regularly create innovative modifications to product payoffs in the structured products market.

Oone such modification is the “star feature,” which has been introduced into both the UK and international markets. It is an enhancement to the standard European barrier, which is commonly used across many product types and geographic regions, and can be applied to capital-at-risk products linked to multiple underlyings.

Typically, the capital repayment condition for multi-asset products depends on the value of the worst-performing underlying, known as the worst-of product type. However, with the one-star feature, if one of the underlyings is greater than a certain level (usually the initial strike level), capital will be repaid in full even if the barrier is breached.

For example, if a product is linked to four underlyings and three of them finish below the barrier, but one is greater than its starting level, the capital investment would still be repaid.

The star feature is a recent innovation in the autocall market that has been developed by investment banks to enhance the returns for investors. This feature can be applied to capital-at-risk products that are linked to more than one underlying asset. It modifies the standard European barrier, which is common across many product types and geographic regions.

As investment banks and distributors strive to increase product appeal and potential returns for investors, they regularly create innovative modifications to product payoffs in the structured products market.

One such modification is the “star feature,” which has been introduced into both the UK and international markets. It is an enhancement to the standard European barrier, which is commonly used across many product types and geographic regions, and can be applied to capital-at-risk products linked to multiple underlyings.

Typically, the capital repayment condition for multi-asset products depends on the value of the worst-performing underlying, known as the worst-of product type. However, with the one-star feature, if one of the underlyings is greater than a certain level (usually the initial strike level), capital will be repaid in full even if the barrier is breached.

For example, if a product is linked to four underlyings and three of them finish below the barrier, but one is greater than its starting level, the capital investment would still be repaid.

In a standard product with a European barrier, if one or more of the underlying assets is below the barrier, the barrier is breached, and some capital will be lost. However, the one-star feature has a key difference. If one of the underlying assets is greater than a certain level, typically the initial strike level, capital will be repaid in full, even if the barrier is breached.

Therefore, if an autocall is linked to multiple underlying assets, the star feature allows investors to potentially receive a return even if some of the underlying assets perform poorly.

The star feature can be beneficial for investors because it provides additional protection against market volatility.

In traditional autocalls, the capital repayment condition is dependent on the value of the worst-performing underlying asset. With the star feature, if one of the underlying assets performs well, the investor may receive a full capital repayment even if some of the other underlying assets perform poorly.

The star feature has already been incorporated into autocall products distributed in the UK market.

For example, a defensive autocall product issued by Citigroup and distributed by Hilbert is linked to five stocks and pays an annual return of 18.3%. The product has reducing autocall levels and a European barrier of 60% with the star feature present. Similarly, IDAD offers a product with the star feature issued by BNP Paribas and linked to four stocks, paying an annual return of 23%.

In conclusion, the star feature is an innovative enhancement to the standard European barrier in structured product autocalls. It offers investors additional protection against market volatility by potentially providing a full capital repayment even if some of the underlying assets perform poorly.

The star feature is already available in the UK market and is likely to become more prevalent as investment banks and distributors seek to find new ways to increase product appeal and potential returns for investors.