Equity Linked Deposit Notes

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					                                                  Equity Linked
                                                  Deposit Notes




For Advisor Use and Informational Purposes Only
                                   Recap of the Equity Markets


                                   Structural Discussion on Principal Protected Notes


                                   Current New Issues




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   For About 5 Years Investing Seemed Easy




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                                                  2
   Then This Happened




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                                                  3
   The Recovery




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                                                  4
   Depending On How Large A Portfolio Is Down…


                                                              Asymmetry of Negative Returns

                                    If a portfolio lost (%)                                   It has to generate (%)

                                             10                                                        11

                                             20                                                        25

                                             30                                                        43

                                             40                                                        68

                                             50                                                       100

                                             60                                                       150

                                             70                                                       233

                                             80                                                       400

                                             90                                                       900

                                            100                                                 Impossible




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                                                                           5
   Especially If Investors Fled To “SAFETY”




                             1 YR                      1.75%


                         2 YR GIC                      1.80%


                         3 YR GIC                      2.35%


                         5 YR GIC                      3.25%




                                                          Subtract for inflation?
                                                     Then for taxes where they apply ?
                                                  What is left? Where is the “Real” return?



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                                                                     6
   A Permanent “Flight To Safety” Will Not Work Today


                                                          Reality Check: An investor sells for a loss and buys a 5 year GIC at 3.25%

                                      If a portfolio lost (%)                                                                      # of years to recoup

                                                  10                                                                                     3.29

                                                  20                                                                                     6.98

                                                  30                                                                                     11.15

                                                  40                                                                                     15.97

                                                  50                                                                                     21.67

                                                  60                                                                                     28.65

                                                  70                                                                                     37.64

                                                  80                                                                                     50.32

                                                  90                                                                                     71.99

                                              100                                                                                      Impossible




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                                                                                             7
                                   Recap of the Equity Markets


                                   Structural Discussion on Principal Protected Notes


                                   Current New Issues




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   Market Exposure with Capital Protection




                                                  CPPI & Option Based Notes – There is a Difference




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                                                                         9
            CPPI/ Dynamic Allocation Structure

                Allocation is determined by the difference between the value of the basket and the value of a theoretical zero coupon bond
                (DT)


                                 Increasing                                                           If…                 Weighting in
                               Exposure to the                                                                             the Fund
                               Underlying Asset
                                                                                                                           Portfolio
                                                                                                      DT > 40%                 200%
                Value                                      Basket NAV                                 35% < DT =< 40%          180%
                                                                                                      30% < DT =< 35%          160%

                                                                                                      25% < DT =< 30%          140%
                                                   Distance (DT )                   $100
                                                                                                      22% < DT =< 25%          120%
           Initial
      Investment                                                                                      14% < DT =< 22%          100%
                                                                                                      10% < DT =< 14%          80%

      Bond Price                                                                                      7% < DT =< 10%           60%
                                                                                                      4% < DT =< 7%            30%
                                                                                                      2% < DT =< 4%            15%
                                                                                                      DT =< 2%                  0%
                                                                                       Time
                          Decreasing Exposure to
                                                                              Maturity
                           the Underlying Asset
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                                                                        10
   The CPPI Structure in Summary


                                            Plus’s                                      Minus’s

            More robust tracking to underlying                       „Ejection‟ risk
            Ability to create distribution paying products           Path dependency
            Potential hedge against a rising interest rate           Distributions, if any, may be variable
             environment                                              Performance in a rebounding market
            Potential for >100% participation                        Volatile underlying asset may be problematic
            Less inputs into determining notes NAV




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                                                              11
   Benefits Of An Option Based Structure



                                                 Contains two inputs, a Zero Coupon Bond and a Call Option
            Clean structure
                                                 The bond delivers the guarantee of $100.00 at maturity and the option provides the
                                                  performance participation into the underlying basket




     Zero risk of de-leveraging or
       encountering a Capital                    Exposure level to the underlying is pre-determined and set for the entire term of the note
         Preservation Event




            Lower volatility                     Structure generally lends to lower volatility than owning the basket of stocks outright




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                                                                               12
   Pricing Dynamics




        Interest rate influences                 Principal protection is effectively provided by a “zero coupon bond”, thus the secondary
                                                  price will be affected by interest rates




       Equity market influences                  The payout on maturity is determined by the performance of the underlying index, thus
                                                  during the term the value of the note will be affected by fluctuations in equity markets




     Option valuation influences                 Participation in the index is provided via an option, thus the value of the note will be
                                                  influenced by traditional option pricing metrics like volatility and “delta”




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                                                                                13
   The Option-based Structure




              $100

             Option




      Zero Coupon
             Bond



                                                                           Maturity


                                   When the Investor buys an option-based principal protected note, they are effectively
                                  buying a package. They are buying effectively a strip bond which provides the principal
                                   protection, and an option that provides the participation in the underlying investment

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                                                                           14
   The Option-based Structure

                                     Price of the Note




             $100




                                                                           Maturity


                               The price of the Note can be determined by a number of different factors including interest
                                rates, the price of the underlying investment, volatility and the inherent characteristics of
                               the option. However, it is important to recognize that with the option-based model despite
                                         what happens to the markets, there is no risk of levering and de-levering
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                                                                           15
   The Impact of Changes in Interest Rates




               $100




       Zero Coupon
              Bond




                                                                                                                            Maturity

                                 Since the instrument that provides the protection of capital is effectively a zero coupon
                               bond, as interest rates fluctuate, so does the value of the zero coupon bond and in turn the
                               note. If interest rates go up, all things being held equal the price of the note will generally
                               go down. However, just like a bond, as the note gets closer to maturity it will become less
                                                           sensitive to changes in interest rates
For Advisor Use and Informational Purposes Only


                                                                            16
   The Tracking issue of Option-based notes

                                                                                                                                  Price of the
                                                                                                                                Underlying Asset
                                      Price of the Note




         $100

        Option




                                                                                                                     Maturity

                         Inherent characteristics of option-based principal protected notes are such that the full value of
                         the performance of the note is reflected the closer we get to maturity. This attribute also means
                          that the note will generally have lower volatility than the underlying asset. In this example, the
                            note paid 100% of the price performance on maturity which is why the lines converged at
                                   maturity. However, this payout profile is not the case with every deposit note
For Advisor Use and Informational Purposes Only


                                                                         17
                                                                -20%
                                                                                        -10%
                                                                                                                              0%
                                                                                                                                   10%
                                                                                                                                         20%
                                                                                                                                               30%
                                                                                                                                                         40%
                                                                                                                                                               50%
                                                       Apr-05
                                                       Jun-05
                                                       Aug-05
                                                       Oct-05
                                                       Dec-05
                                                       Feb-06
                                                       Apr-06




                                                                       CI Fund Basket




     For Advisor Use and Informational Purposes Only
                                                       Jun-06
                                                       Aug-06
                                                                                                                                                                                    Real Life Example – JHN204




                                                       Oct-06
                                                       Dec-06




                                                                                          BMO CI C.A.P.I.T.A.L Deposit Note
                                                       Feb-07
                                                       Apr-07
                                                       Jun-07
                                                       Aug-07
                                                       Oct-07
                                                       Dec-07
                                                       Feb-08




18
                                                       Apr-08
                                                                                                                                                                      2005-2011
                                                                                                                                                                     Total Return




                                                       Jun-08
                                                       Aug-08
                                                       Oct-08
                                                       Dec-08
                                                       Feb-09
                                                       Apr-09
                                                       Jun-09
                                                       Aug-09
                                                       Oct-09
                                                       Dec-09
                                                       Feb-10
                                                       Apr-10
                                                       Jun-10
                                                       Aug-10
                                                       Oct-10
                                                       Dec-10
                                                       Feb-11
                                                                                                                                                     34.43%
                                                                                                                                                     37.93%
   The Option-based Structure in Summary


                                            Plus’s                                         Minus’s

       No risk of levering and de-levering                        Inherent characteristics of option-based principal
                                                                    protected notes are such that the full value of the
       Generally lower volatility than the underlying              performance of the note is reflected the closer we
        asset                                                       get to maturity
       Calculating variable interest can be more easily           Interest rate sensitivity
        determined




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                                                           19
                                   Recap of the Equity Markets


                                   Structural Discussion on Principal Protected Notes


                                   Current New Issues




For Advisor Use and Informational Purposes Only
   BANK OF MONTREAL CI C.A.P.I.T.A.L. DEPOSIT NOTES CALLABLE CLASS, SERIES 4


       Term of 6 years

       Callable: by Bank of Montreal (Issuer) on May 5th, 2014 at $133.10 which is
        equivalent to a 10% compound rate of return.

       If not called: by Bank of Montreal on May 5th, 2014 the holder will receive a return at
        maturity equal to the percentage increase, if any, of the Reference Portfolio from the
        Closing Date to and including the Final Valuation Date.

       Fees: An all-in fee of 2.95% is charged to the Reference Portfolio which represents a
        cost of 0.905% above the average current MER of the Class A unites of the underlying
        CI Funds

       100% Principal Protected by Bank of Montreal, as issuer, if held to maturity.

       Selling Commission: 3.00%

       FundServ Code: JHN232


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                                                       21
                                                                                                                              0%
                                                                                                                                   10%
                                                                                                                                         20%
                                                                                                                                               30%
                                                                                                                                                         40%
                                                                                                                                                               50%




                                                                -20%
                                                                                        -10%
                                                       Apr-05
                                                       Jun-05
                                                       Aug-05
                                                       Oct-05
                                                       Dec-05
                                                       Feb-06
                                                       Apr-06




                                                                       CI Fund Basket




     For Advisor Use and Informational Purposes Only
                                                       Jun-06
                                                       Aug-06
                                                       Oct-06
                                                       Dec-06




                                                                                          BMO CI C.A.P.I.T.A.L Deposit Note
                                                       Feb-07
                                                       Apr-07
                                                       Jun-07
                                                       Aug-07
                                                       Oct-07
                                                       Dec-07
                                                       Feb-08




22
                                                       Apr-08
                                                                                                                                                                      2005-2011
                                                                                                                                                                     Total Return




                                                       Jun-08
                                                       Aug-08
                                                       Oct-08
                                                       Dec-08
                                                       Feb-09
                                                       Apr-09
                                                       Jun-09
                                                       Aug-09
                                                       Oct-09
                                                       Dec-09
                                                       Feb-10
                                                       Apr-10
                                                       Jun-10
                                                       Aug-10
                                                       Oct-10
                                                       Dec-10
                                                       Feb-11
                                                                                                                                                     34.43%
                                                                                                                                                     37.93%
   Advantages of Principal Protection

       Traditional Asset Allocation is redefined
         Improve the growth dynamics of the portfolio and lower the risk too

       Can be positioned as either fixed income or equity
         Investors that do not require cash-flow or fear investing in equities again

       Cost effective
       Lower portfolio volatility
       Help investors avoid damaging/unnecessary Asset Allocation shifting
       Position for market recovery with the comfort of a guarantee
       “Tracking” forces investors to take a longer term view
       Stop worrying about the markets




For Advisor Use and Informational Purposes Only


                                                   23
   Disclaimer

   This summary is issued for information purposes only to provide an overview Deposit Notes and does not constitute investment
   advice or an offer to sell or a solicitation to purchase.

   Bank of Montreal makes no assurances, representations or warranties with respect to the accuracy, reliability or completeness of
   information contained herein. Furthermore, Bank of Montreal makes no recommendation of investing in securities generally or
   Deposit Notes in particular. No person has been authorized to give any information or to make any representation not contained in
   the Information Statements relating to the Deposit Notes and Bank of Montreal does not accept responsibility for any information not
   contained in the Information Statement.

   “BMO Capital Markets” is a trademark of Bank of Montreal used under license.




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                                                                    24

				
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