Zero Strike Participation Certificates
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Contents |
What is it
Zero Certificates allow an investor to buy into companies in a particular country, or into baskets of stocks that follow a certain investment theme.
They offer investors exposure to emerging markets or industrial sectors that might otherwise be difficult to access due to trading restrictions or settlement complications.
ABN Amro is offering a total of eight country based certificates that will allow investors to put their money into companies in Pakistan, Philippines, Turkey, Indonesia, Malaysia, the Middle East and Thailand, as well as in a basket of countries: Brazil, Russia, India and China. There are also three zero certs based on the following themes: companies that produce luxury goods, Asian Real Estate Investment Trusts(REITS) and companies related to "climate change and the environment".
The Luxury Index Zero Cert tracks the performance of 15 luxury goods companies, such as LVMH Moet Henessy, carmaker BMW and Diageo, brewer of Johnnie Walker whisky.
The Climate Change and Environment Index Zero Cert tracks the performance of listed companies involved in technologies that address climate change and other environmental issues.
How they work
Technically speaking, zero certs are cash settled warrants with an exercise price of zero - hence their name.
Broadly speaking, buying zero certs is like buying a fund that invest in a basket of stocks except that:
- They are listed on the Singapore Exchange just like normal stocks, so investors can trade them through stockbrokers during market hours.
- Unlike Unit Trusts, there is no sales charge or management fees. But there is a spread, with the "bid" price lower than "ask" price.
- Zero certs will mature in 2010. Investors who still have them then will be paid in cash the market value of the certs. The amount will depend on the underlying index level. For instance if the value has increased by 20 percent at maturity, the investor would receive 120 percent of his initial investment.
Minimum Investment
The minimum quantity is 1000 shares of each zero cert. This means that if the cert is priced at 78 cents, the minimum investment would be $780.
Risks
Essentially, the performance of zero certs is linked directly to how their corresponding market indexes and shares perform, less the actual dividend payouts.
The product is not capital protected, do investors could lose or make money. Also, the certs are issued by ABN Amro so there is a small risk of credit risk associated with the potential collapse of the issuer.
- Taken from Straits Times 10 June 2007.
