SG launches 'gemstone' series in Asia

AA-rated Lyxor Asset Management, the Luxembourg-based 'fund factory' of French bank SG that offers credit-enhanced management of funds, has introduced the first of its 'gemstone' series of funds in Hong Kong, called Sapphire Guaranteed Fund.

The fund, based on three innovative mechanisms aimed at enhancing quarterly returns, participation rate and minimum capital guarantee, offers a minimum of 106% guarantee on capital if held to maturity.

Initially, the fund will comprise 22 blue-chip stocks with a final maturity of 4.5 years. At the end of each quarter, if at least one stock within the basket is at or above its level at the launch date, the quarterly coupon is locked-in and the stock is taken out of the basket.

But, if at the end of a quarter no quarterly coupon is locked-in, the participation rate will be increased by the level of the quarterly coupon and no stock will be taken out of the basket. While the quarterly coupon rate has not yet been announced, it is expected to be at least 1.8%.

At the end of each year, should the basket price be equal to or above 115% of the initial basket price, an 'extra guarantee trigger' is activated and the capital guarantee at maturity will be increased by the sum of the locked-in coupons for that year. If not, however, investors will receive 106% of their initial investment at maturity.

"Individual stock prices are currently highly volatile, and therefore the probability of having one stock above its initial price is high even if equity markets perform poorly in the short-term," said Nicolas Reille, senior vice-president at SG. "Entry levels are also currently attractive and many analysts believe equity markets should rebound in the medium-term."

The same product was first launched in Europe earlier this year, but did not include a capital guarantee feature, instead offering investors the possibility of gaining additional leverage on their portfolio at maturity.