How to invest in Barrier Reverse Convertibles

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The Barrier Reverse Convertible (BRC) is one of the most popular structured products. And not without reason, because BRCs can be used very well to control the risk-return profile in a portfolio. As follows a quick “How To Investing in BRCs”.

BRC: a possible solution for every portfolio
Barrier Reverse Convertibles (BRCs) can basically fit into any portfolio, because it can be adapted to the market situation depending on risk appetite and security needs.

The attractiveness of the guaranteed coupon should not alone be decisive for the investment decision. The underlying stocks (we choose our two most popular stock-baskets in the idea below) and the risk associated with them should also fit into the portfolio. Whether lower barriers or higher coupons, BRCs can be used easily and flexibly to optimize the risk/return profile.

Compared to direct investment, the BRC offers the investor a certain risk buffer. Because the built-in barrier protects the investor from price setbacks up to the barrier - the portfolio can thus be hedged at least to a certain extent. On the other hand, the upside is limited to the coupon. But how exactly does that work?

Adjustments for controlling the risk-return profile
The height of the barrier is thus an important feature of the BRC and determines how conservative or risky a BRC is. In addition to the height of the safety buffer or the depth of the barrier, the periodicity or point in time of the barrier observation also plays an important role. With the «observation type», a fundamental distinction is made between continuous observation and observation at matutrity.

Coupon and barrier level
As is well known, with barrier reverse convertibles (BRCs) higher security buffers (low barriers) can be achieved “at the expense” of yields (coupons) and vice versa. The reason: high security buffers (lower risks) have to be “bought” here, as with all other financial investments, with lower returns. The well-known motto also applies here: "There is no such thing as a free lunch". Ultimately, the investor relinquishes part of the return potential of a direct investment via a BRC in favor of risk reduction.

Type of Barrier
In addition to the "coupon" and "safety buffer" attributes, the barrier type plays an important role in the risk/return ratio. As already mentioned, a distinction is made between European and American barrier types. In the case of barrier reverse convertibles with so-called American barriers, the barrier is continuously monitored. It is therefore constantly checked whether one of the underlying assets touches or falls below the barrier. In contrast, with the European variant, it is only checked at maturity – at the final fixing – whether one of the underlying has touched or breached the barrier. The last barrier type is the daily on market close check if a barrier event has taken place. The more frequently a barrier is observed, the higher the probability of a barrier hit and the higher the return via the coupon.

If a previously defined barrier was never hit during the entire term, repayment will be made at the nominal value. For a positive return on the BRC, it is sufficient if the underlying hold their levels or fall slightly. This is precisely the greatest strength of the BRC. Because in sideways phases, shares and investment products that only rely on rising prices typically underperform. BRCs, on the other hand, play to their strengths precisely when prices are trending sideways. Investors receive a guaranteed coupon when investing in a BRC, regardless of the performance of the underlying assets. However, the return is limited to the coupon even if prices rise sharply.

If there was a barrier event during the term - i.e. one or more underlying have hit the barrier - but the price of the underlying recovers later on and quotes at least at the put strike at maturity, the repayment will also take place in this case in the amount of the nominal value. If the BRC is based on several underlying, all three prices must recover above the exercise price by the final fixing in order for a repayment at the nominal value to take place. If a barrier event occurs during the term and at least one price of an underlying quotes below the exercise price at maturity, "physical delivery" or “cash settlement” takes place. In the worst case, a total loss of the invested capital is possible. The investor also bears the default risk of the issuer.

BRCs with many different special properties
Are you also looking for additional yield drivers for the BRCs? Or maybe more security or other special equipment? No problem. Our BRCs can also be equipped with various special features. Whether autocall or issuer call, conditional coupon, participation or even more - our BRC offers you a wide range of options.


Finally, as follows we present to you BRCs on our two most popular equity baskets. Both products are in subscription until next Friday, 1st September. With barriers of 70%/50% of today's share prices and coupons in CHF/USD of 6.00/10.50% p.a. we believe we can offer added value for most client portfolios in what is still a very volatile environment.

Short facts about the stocks

Ticker Description Vontobel / Morningstar Market Cap CHF
NOVN SE Novartis Buy 204,797
NESN SE Nestlé Buy 280,770
ROG SE Roche Buy 187,997
AAPL UW Apple Hold 2,520,115
GOOGL UW Alphabet Buy 669,172
MSFT UW Microsoft Hold 2,144,063

Source: Vontobel 25/08/2023


In this context, we present the following two products:
Multi Barrier Reverse Convertibles

ISIN / Valor Products CCY Underlying Tenor (m) American Barrier % Coupon % p.a., paid quarterly Reoffer % Issuer
Termsheet / KID
MBRC on Swiss Stocks CHF NOVN SE, NESN SE, ROG SE 12 70 6.00 100 VT Dubai
Termsheet / KID
MBRC on US Tech Stocks USD MSFT UUW, GOOGL UW, AAPL UW 12 50 10.50 100 VT Dubai

Historical price history normalized to 100


Source: Vontobel, 30/08/2023


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