JPMorgan tweaks warrant structure with DARWINS
JPMorgan’s structured products division has launched its Dividend Advance Resettable Warrant Instalments (DARWINS), an Australian Stock Exchange (ASX) listed warrant product with a JPMorgan twist.
Aimed at domestic retail investors, the traditional instalment warrant structure has been tweaked by providing investors with a portion of estimated dividends in advance.
The product draws from the top 50 stocks of the ASX200, with investors able to regularly review and modify their selected stocks.
According to David Jones-Prichard, JPMorgan’s vice president, equity derivatives and structured products: “Rather than just create a me-too product, what we’ve decided to do … is advance up to 75 per cent of the estimated dividend to the warrant-holder on day one.
“That provides a lower upfront first instalment price, thereby giving greater leverage.”
Jones-Prichard expects the product will be used as a diversifier within the Australian shares portion of existing retail portfolios, and said the popularity of instalment warrants has been growing strongly here in recent years.
He pointed to ASX figures that showed the dollar value of warrants traded in 2005 was $6.5 billion, rising to $9.7 billion in 2006, and believes these figures will continue to rise as investors become more educated about such investment strategies.
“I think the Australian market in some ways is very sophisticated, but in other ways it is still learning a lot … as product issuers communicate how these products work and educate advisers,” Jones-Prichard said.
DARWINS can be accessed from the ASX via stockbrokers, or through financial planners, which is JPMorgan’s primary distribution method for the product.
While recently launched structured products such as the JPMorgan Alternative Energy and Masters Selection Series’ STRATAS had gestation periods of just three months, Jones-Prichard said DARWINS spent 12 months in development as it consulted with financial planners and investors.
“We can say, ‘What do you want, and how does this suit?’, and if it doesn’t suit, we can change the product, and that’s what we’ve done with these products we’ve launched,” he said.
JPMorgan may also consider developing an international equity version of DARWINS, subject to investor demand.
“It’s something we’ve considered … but we really need to gauge real demand for offshore underlyings,” Jones-Prichard said.
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