Equity derivatives provide an opportunity to seek enhanced income returns from share investments, while managing risk and providing portfolio hedging
Seeking income and have conviction on a stock or market direction? NERTIs may fit the bill to meet your investment goal
Are NERTIs the right investment for you?
NAB Equity Referenced Term Investments or “NERTIs” are short term equity referenced investments issued by NAB. NERTIs may be suitable for wholesale investors who have a view on equities and are looking for enhanced income returns. This article will focus on how they work, potential risks and benefits.
How they work
NERTIs provide investors with the potential to generate an enhanced income return by referencing an investment to an underlying equity. The enhanced income return, referred to as the Income Rate, is received in return for taking the risk that you may be delivered shares in your chosen equity at a value which is less than your original investment amount.
NERTIs give you the flexibility to customise the risk and return of your investment. You select:
NERTI’s are available on ASX200 stocks as well as the index itself. The minimum investment per security is $50,000.
What influences your return?
To discuss the type of returns you can get through NERTIs, please contact your NAB Investment Specialist.
On maturity of the NERTI there are two possible outcomes:
Understanding the key risks and considerations
A key risk is you buy the reference security at your chosen reference price. However, in a market sell- off, this could be higher than the market value at the time the NERTI matures. In this instance, you may choose to hold the stock, if you are of the view that that the stock value has the potential to move higher in the future. In this case, you will receive any dividends paid as a normal equity holder while you continue to hold the shares.
Investors should be aware that once a trade is entered, it is unbreakable for the nominated term.
During the term of the NERTI, you will not receive any dividends generated by the referenced security and returns are capped at the coupon rate.
A NERTI gives you the flexibility to customise the risk return characteristics of your investment. Setting your Reference Price higher, relative to the current price of the Reference Security, will generally provide you with a higher Income Rate but also comes with a greater risk of you being delivered shares in your chosen equity at maturity on circumstances where the shares are trading at a price less than what you paid for them. The benefit of NERTIs is that it allows you to generate profit whether the market moves up, stays flat or even falls as long as the stock doesn’t fall below your nominated reference level. The key is to choose a stock you are happy to hold even if it closes below your reference level at maturity.
For a full discussion of the risks and benefits of NERTIs, please contact your NAB Investment Specialist.
The information contained in this article is gathered from multiple sources believed to be reliable as of the end of October 2023 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, we recommend that you consider whether it is appropriate for your circumstances and that you seek independent legal, financial and taxation advice before acting on any of this information. ©2023 NAB Private Wealth is a division of National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.
The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. NAB does not guarantee the accuracy or reliability of any information in this article which is stated or provided by a third party. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, property, financial and taxation advice before acting on any information in this article. You may be exposed to investment risk, including loss of income and principal invested.
You should consider the relevant Product Disclosure Statement (PDS), Information Memorandum (IM) or other disclosure document and Financial Services Guide (available on request) before deciding whether to acquire, or to continue to hold, any of our products.
All information in this article is intended to be accessed by the following persons ‘Wholesale Clients’ as defined by the Corporations Act. This article should not be construed as a recommendation to acquire or dispose of any investments.
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