Macquarie hooks into Global Titans for notes

Macquarie Investment Services is tweaking Highpoint structure and plans to list version two on the NZX.

Wednesday, February 9th 2005, 12:29PM

That means they will be able to be bought and sold through brokers at the current trading price.

The new investment Highpoint will have similar features to the first version with 100% capital protection provided by Barclays Bank and cumulative 10% gains locked in up to 100%.

The new notes will also have a new five year knockout feature, be linked to a single international equities index and operate under a different, effective, tax structure.

The knockout feature means if the notes deliver the maximum 100% return on the investment after 5.5 years, the initial capital plus the 100% return can be paid out then.

If the investor stays put, the trade-off is that Highpoint will pay lower returns if the market returns higher than 10%pa for next eight years.

But Macquarie says few market commentators expect those sorts of returns over the coming decade. The index the new notes will be link to is the Dow Jones DJ Global Titans 50 index of 50 top global companies.

Those companies include GE, Exxon Mobil, Microsoft, Pfizer, Citigroup, BP, Bank of America, Johnson and Johnson, HSBC, Vodafone, Proctor & Gamble and IBM. The index is 60% weighted by market cap, 20% by sales/revenue and 20% by profit. It has a 99% correlation with the MSCI Index.

Macquarie says Highpoint are an FC1 debenture for New Zealand tax purposes, meaning the notes are considered equity under tax legislation.

As equity, all gains can be capital accounted, depending upon investor circumstances (as per normal shares).

Macquarie says it also has developed a dividend policy that would mean some cash flow paid out if markets rise very steeply.

Macquarie believes the guaranteed nature of the notes makes them highly attractive to New Zealanders keen to get into international equities, but who are hesitant because they either got burnt or heard horror stories about the last market crash.

After the massive increases in international equities in the late 1990’s less than 5% of New Zealand investors sold before the crash.

For many investors, gains were completely wiped out or, in some cases, investors ended up with less than they initially invested.

Macquarie says the notes also mitigate the usual currency risks associated with international equities by protecting investments from foreign exchange risk as both capital and returns are hedged 100% in NZ dollars.

It says this has been a major problem for New Zealand investors in recent years as the US dollar fell more than 40% against the NZ dollar, meaning investors’ capital fell even further than the markets did.

New Zealand investors in ordinary unhedged international equities funds have lost 55% since global markets peaked in August 2000 Macquarie says. In that same period of time, the MSCI World Index has risen by 4%.

Macquarie is offering investors a couple of incentives to lure them into the notes issue.

The first is a 7%pa interest cheque for those that invest prior to the closing date of March 23, 2005 and up to when the initial investment into the notes has been made. The second is a chance to gear into the notes, by borrowing up to 100%.

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