Methodology Overview

Transcription

1 BRC Best Picks Methodology Overview May 2016 This structured products referenced do not constitute a participation in a collective investment scheme within the meaning of the Swiss Federal Act on Collective Investment Schemes (CISA) and is therefore not subject to authorization and supervision by the Swiss Financial Market Supervisory Authority (FINMA). This document only outlines certain key features of the product. For additional information, please refer to the Issuer s documentation or your Relationship Manager.

2 BRC Best Picks BRC Best Picks are a selection of stocks aiming to identify stocks with limited risk of large drawdowns over the medium term (e.g. 18 months) The selection process which combines fundamental factors, technical indicators and volatility criteria has been described by Credit Suisse Research This selection can be use to generate investment ideas for yield enhancement products such as Barrier Reverse Convertibles The selection is updated on a monthly basis Slide 2 of 6

3 Selection Process Overview The selection process is performed on a monthly basis, using end-of-month data: Universe: all US, EMU* and Swiss stocks (excluding banking and insurance stocks) included in Credit Suisse s online structured products pricing tool (my Solutions) and the Credit Suisse Research Universe Selection Factors Combination of fundamental, technical and volatility factors provided by Credit Suisse Research aiming to identify stocks with limited downside risk over the medium term (e.g. 18 months) Best pick stock ideas Ca stocks per region Quantitative optimizer Selection of the 3 best pick stocks which maximize the yield on a 18 month 60% barrier BRC Top investment ideas: 1 product per region** *EMU includes the following countries: Germany, France, Italy, Netherlands, Austria, Spain, Belgium, Finland, Ireland and Portugal **no results shown for regions with less than 3 best picks Investors can configure bespoke investments using my Solutions Bespoke investment ideas Region US Europe Switzerland Product Barrier Reverse Convertible Currency USD EUR CHF Maturity Barrier Underlying stocks 18 months 60%, continuous observation The 3 best picks within the region which maximize the coupon Slide 3 of 6

4 Selection Factors The Selection Factors which aim to identify stocks with limited risk of large drawdowns over the medium term have been described in the Research Alert A methodology to identify stocks with limited downside risk (3 May 2016) Fundamental Technical indicator Volatility Factor Measure Rationale CS Rating* Price to Book (P/BV) Expected Dividend Growth Default probability Momentum Implied Volatility Implied vs Realized Volatility BUY/ Outperform* or HOLD / Neutral* rated stocks 12-month forward P/BV 1 is less than 10% premium of its historical average Expected dividend growth 1 greater than or equal to zero Default probability score 2 less than 2 [9-day] Relative Strength Index 1 (RSI) below 70 Implied 90 day volatility 1 below 30% Implied 90 Day Volatility 1 minus Realized 30 Day Volatility 1 between 0% and 5% Ignoring stocks where our fundamental outlook is negative. Avoiding companies with high P/BV premium provides valuation cushion and lowers the risk of de-rating. A flat to rising dividends is a good indication for cash flow improvement or financial flexibility. Companies with low default probability score have lower risks and accordingly suffer less than their cyclical counterparts. RSI readings above 70 are considered to be in overbought territory, hence increasing downside risk for the stock High implied volatility is an indication for higher risk for the stock Implied volatility below realized volatility is an indication that risk is not being reflected sufficiently in the option market Implied volatility considerably above realized volatility is an indication that the market is pricing in increased risk on the stock Source legend: 1 = Bloomberg, 2 = HOLT, * Please find disclosure information on Credit Suisse Investment Banking rated companies mentioned in this report under Slide 4 of 6

5 Backtesting results Frequency of large drawdowns ( 40%) over an 18 month period* for the selection of stocks vs. universe (aggregate results for US, European and Swiss stocks) 60% 50% 40% 41% 36% 39% 30% 20% 10% 0% 22% 23% 19% 17% 16% 13% 10% 9% 11% 8% 6% 4% 3% 0% 0% coverage universe my Solutions universe selection The selection has been simulated annually from 2009 (the first date for which full coverage data is available) until The criteria have been defined based on the 2013 simulation; the other simulations are out of sample. Source: Research Alert A methodology to identify stocks with limited downside risk (3 May 2016) Coverage universe is Credit Suisse s PB and IB covered stocks at that point of time and my Solutions universe is as of January Historical performance indications and financial market scenarios are not reliable indicators of current or future performance. *For 2014, calculated drawdown is for 14 months till February 2016 Slide 5 of 6

6 Disclaimer The information provided herein constitutes marketing material. It is not investment advice or otherwise based on a consideration of the personal circumstances of the addressee nor is it the result of objective or independent research. The information provided herein is not legally binding and it does not constitute an offer or invitation to enter into any type of financial transaction. The information provided herein was produced by Credit Suisse AG and/or its affiliates (hereafter "CS") with the greatest of care and to the best of its knowledge and belief. The information and views expressed herein are those of CS at the time of writing and are subject to change at any time without notice. They are derived from sources believed to be reliable. CS provides no guarantee with regard to the content and completeness of the information and does not accept any liability for losses that might arise from making use of the information. If nothing is indicated to the contrary, all figures are unaudited. The information provided herein is for the exclusive use of the recipient. Neither this information nor any copy thereof may be sent, taken into or distributed in the United States or to any U. S. person (within the meaning of Regulation S under the US Securities Act of 1933, as amended). It may not be reproduced, neither in part nor in full, without the written permission of CS. Structured derivatives are complex investment products and involve a high degree of risk. They are intended only for investors who understand and are capable of assuming all risks involved. The investment product's retention of value is dependent not only on the development of the value of the underlying asset(s), but also on the creditworthiness of the issuer (issuer risk), which may change over the term of the investment product. CS may be involved in other transactions related to any underlying of the investment product; such possible transactions are not disclosed herein. Product documentation (e.g., simplified prospectus) can be obtained free of charge from the issuer or any branch of CS in Switzerland. Copyright 2016 Credit Suisse Group AG and/or its affiliates. All rights reserved. Slide 6 of 6