Since the start of the year, Wall Street has recorded significant capital gains. ZKB’s capital protection product on the S&P 500 allows investors to participate in the evolution of the American stock market while protecting their capital.
People who invested in American stocks at the start of the year had a good investment year. The US blue chip S&P 500 index has gained nearly 27% since the start of the year, outperforming the stock markets of other industrialized countries1. The EuroStoxx 50, for example, gained 8.1% over the same period, while the SMI rose 8.5%. One of the causes of the outperformance of American stock markets lies in technology stocks that benefit from the rise of artificial intelligence: the stocks of the “Magnificent Seven” – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla – have seen their value increase by almost 60% since the start of the year, as shown by the Bloomberg Magnificent 7 Total Return Index.
The latest Wall Street rally was sparked by the election of Donald Trump as 47e President of the United States in early November. In the days that followed, the S&P 500 rose up to 5% and closed for the first time in its history above the 6,000 point mark.
However, it is unknown whether this increase will continue in the coming months. The ZKB certificate with capital protection on the S&P 500 can therefore prove interesting for investors who do not really believe in the stock market rally, but who nevertheless wish to participate in the upward potential of the American stock markets. The guaranteed capital product is a “Shark Note” which owes its name to the payment profile reminiscent of a shark’s fin. In addition to full capital protection, the Shark Note on the S&P 500 comes with a 120% knockout barrier and a 5% discount. The different elements interact in the manner explained below:
- 100% capital protection at maturity
Capital protection amounts to 100% of the nominal value of the product and applies at maturity. As with bonds, price fluctuations may occur during the lifespan and the product’s price may fall below the capital protection level. Investors fully participate in the upward movement of the S&P 500, provided that the knockout barrier is not reached during the duration. The upside potential is therefore limited. In return, the invested capital is protected, unlike a direct investment in the index. - Limited participation with knockout barrier
Investors fully participate in the capital gains of the S&P 500, but this participation is limited. This is where the knock-out barrier, established at 120% (measured at the Initial Fixing) for this product, comes into play: if the price of the S&P 500 exceeds this barrier during the life of the certificate, participation in the capital gains of the index is removed. In the event of a knockout, capital protection at maturity is maintained and investors also receive a 5% discount. - Nice additional feature: discount
The discount can be compared to paying a coupon. It is triggered when the S&P 500 exceeds the 120% knockout barrier during the life of the product. In this case, the repayment at maturity is equivalent to the invested capital plus the 5% discount. This allows investors to obtain a return even if a knockout occurs and they can therefore no longer participate in the increase in value of the underlying. If the knockout barrier is not reached, there is no discount.
The ZKB capital protection certificate on the S&P 500 is aimed at investors who believe that the S&P 500 will move upwards, but who do not expect a price surge in the coming months and at the same time wish to exclude the risk of capital loss. On the other hand, the product is not suitable for investors who expect a strong rise in the S&P 500 or temporary surges. Investors should always base their decisions on their expectations.
The product trades on the secondary market under the number 134141568.
Learn more about the ZKB capital protection product.
Link to product page Financial information:
Capital protection certificate with barrier | Structured products | ZKB investment products | Zürcher Kantonalbank financial portal
1All performance data is as of November 13, 2024, including dividends.
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