Participation notes opposed to Yield enhancement notes in that they offer more attractive participation in the market movements. A participation rate regulates the return of investors.
Furthermore, participation products can provide investors with access to an asset or group of assets not readily available to private investors. Through extensive range of participation notes, such as tracker certificates, bonus certificates, outperformance certificates etc. investors of all risk appetites have efficient and transparent way to participate in the performance of the underlying in rising and falling markets.
For example, Bonus Certificates offer the opportunity to participate in the performance of the underlying combined with a conditional capital protection up to a certain level. Outperformance certificates offer the opportunity to disproportionately benefit from the positive performance of the underlying.
Since these products may not provide for full repayment of principal at maturity and are typically linked to sophisticated underlying assets, they may be more appropriate for moderate to aggressive investors.
-Smaller initial investment may be required to track index or diversified portfolio
-Disproportional participation if there is a positive performance of underlyings (Only outperformance certificates).
-Profits possibility with rising or falling markets (Twin-Win Certificate).
-No principal guarantee
-No guaranteed coupon yield
-Investors face downside risk and may lose part or all of their original investment