Sequoia US Equity Hedge Series 2:
Providing a short term hedge against a fall in the S&P 500
The objective of the Units in Sequoia US Equity Hedge Series 2 is to provide a positive pay out to investors in the event that the S&P 500 Price Return Index (”the Reference Asset or Index”) falls over a 4 month period. The Units aim to achieve this by offering leveraged exposure to the negative performance of the Index below the Strike until reaching the Lower Barrier. The Strike is set at 95% of the Index Starting Level on the Commencement Date and the Lower Barrier is expected to be set at 70% of the Index Starting Level on the Commencement Date (see Lower Barrier in the table below for more information). The maximum pay out at Maturity in the best case scenario is 25% (Strike minus Lower Barrier) applied to the full leveraged investment amount before adjusting for any changes in the AUD/USD exchange rate. The inclusion of the Strike and Lower Barrier features in Series 2 enables the investor to benefit from a lower Total Investment Cost as compared to what would be payable in the absence of such features.
The S&P 500 is widely regarded as the best single gauge of large-cap U.S. equities. Created in 1957, the S&P 500 was the first U.S. market cap weighted stock market index. This world-renowned index includes 500 of the top companies in leading industries of the U.S. economy and covers approximately 80% of available market capitalisation.1
A summary of the key features are as follows
- Reference Asset/Index
- Currency Exposure
- Performance Coupon
- Limited recourse Loan
- Investment Term
- Lower Barrier
- Total Upfront Interest Cost on Loan
- Application Fee
- Total Investment Cost
Break Even Level of the Index at Maturity
- Margin Calls
- SMSF Eligibility
- S&P 500 Price Return Index
- Yes. The potential Performance Coupon at Maturity is adjusted for changes in the AUD/USD exchange rate during the Investment Term.
- One (1) potential capped Performance Coupon payable at Maturity calculated by reference to the negative performance of the Index subject to the application of the Strike and Lower Barrier and adjusting for changes in the AUD/USD exchange rate over the Investment Term.
- Yes. Investors borrow 100% of the Investment Amount.
- Four (4) months.
- 95% of the Index Starting Level. A Performance Coupon only becomes payable at Maturity once the Index has fallen below the Strike.
- The Lower Barrier is determined by the Issuer on the Commencement Date whilst keeping the interest rate the same. As at the date of the PDS the Lower Barrier would be 70% of the Index Starting Level. The Issuer will not proceed with the issue of the Units if the Lower Barrier cannot be set at or below 75% on the Commencement Date.
- 5.6% of Loan Amount (flat and not annualised)2
- 0.55% including GST
- 6.15% (payable upfront)
88.85% of the Index Starting Level. The Index needs to fall by 11.15% by the Maturity Date in order for the investor to break even at Maturity (before applying any changes in the AUD/USD exchange rate)
Reference asset Starting Levels
- S&P 500 Index
- SPX Index
Sequoia US Equity Hedge Series 2 Performance
|Date||Index Value||Indicative Unit Value*||Gross Performance|
* Unit Value: Investors please note this is a theoretical investment maturity value. This investment is designed to be held to maturity. Any investors seeking to redeem prior to maturity may receive an amount significantly different to the Indicative Unit Value stated
- Your return (including any Performance Coupon) is affected by the negative performance of the Index. There is no guarantee that the Index will perform negatively;
- There will be no Performance Coupon payable if the performance of the Index is equal to or above 95% of the Index Starting Level by the Maturity Date. As such, the Index needs to fall by more than 5% by the Maturity Date before any Performance Coupon becomes payable;
- The potential Performance Coupon payable is capped at 25% before adjusting for changes in the AUD/USD exchange rate, due to the application of the Strike and Lower Barrier. Therefore, if the Index falls below the 70% Lower Barrier by Maturity Date, no additional coupon will be payable;
- The Performance Coupon is determined by reference to the Index Starting Level and the Index Closing Level at Maturity as well as changes in the AUD/USD exchange rates in the Investment Term. An increase in the AUD/ USD exchange rate will decrease the Performance Coupon whilst a fall in the AUD/USD exchange rate will increase the Performance Coupon;
- There is no guarantee that the Units will generate returns in excess of the Prepaid Interest and Fees, during the Investment Term. Additionally, in the event of an Investor requested Issuer Buy-Back or Early Maturity Event, you will not receive a refund of your Prepaid Interest or Fees;
- Gains (and losses) may be magnified by the use of a 100% Loan. However, note that the Loan is a limited recourse Loan, so you can never lose more than your Prepaid Interest Amount and Fees paid at Commencement;
- Investors are subject to counterparty credit risk with respect to the Issuer and the Hedge Counterparty; and
- The Units may mature early following an Early Maturity Event, including an Adjustment Event, Market Disruption Event or if the Issuer accepts your request for an Issuer Buy-Back.
Please refer to Section 2 “Risks” of the Master PDS for more information.
Units in Sequoia US Equity Hedge Series – 2 are issued by Sequoia Specialist Investments Pty Ltd (ACN 145 459 936 ) (the “Issuer”) and arranged by Sequoia Asset Management Pty Ltd (ACN 135 907 550, AFSL 341506)(the “Arranger”). Investments in the Sequoia US Equity Hedge Series – 2 can only be made by completing an Application Form attached to the Term Sheet Product Disclosure Statement (“TSPDS”), after reading the Term Sheet PDS dated 06 August 2020 and the Master PDS dated 14 August 2017 and submitting it to Sequoia. A copy of the PDS can be obtained by contacting Sequoia Asset Management on 02 8114 2222 or contacting your financial adviser. You should consider the Term Sheet & Master PDS’ before deciding whether to invest in Units in Sequoia US Equity Hedge Series – 2. Capitalised terms on the webpage have the meaning given to them in Section 10 “Definitions” of the Master PDS