Apple Inc. (NASDAQ:AAPL), Netflix, Inc. (NASDAQ:NFLX), Zynga Inc (NASDAQ:ZNGA) and many other tech companies are attracting structured note investors. These investors are making their biggest bets on technology companies in more than four years as banks look for more volatile companies to bolster yields. According to Bloomberg, banks have sold more than $566.4 million of notes linked to 28 tech stocks this year so far.
Apple and Facebook leading the structured note sale
Banks issue structured notes by combining debt with derivatives to offer customized bets to individual investors. Lenders earn fees while raising money. These securities usually pay interest, but may lose value if shares plummet from their initial prices. Technology companies like Netflix, Inc. (NASDAQ:NFLX) and Facebook Inc (NASDAQ:FB) have radically changed their business models to build a solid presence on mobile platforms. It increases their volatility, says Macquarie Securities analyst Ben Schachter. Notes linked to more volatile companies offer relatively higher potential gains due to the risk of greater loss.
Companies most popular with structured note investors are Cisco Systems, Inc. (NASDAQ:CSCO), Google Inc (NASDAQ:GOOG), Apple Inc. (NASDAQ:AAPL), and Microsoft Corporation (NASDAQ:MSFT). Apple and Facebook Inc (NASDAQ:FB) are leading the sales of structured notes this year with $190.3 million for these two companies alone.
Banks issue structured notes linked to Google, Zynga
UBS AG (NYSE:UBS) sold a $39.5 million note on February 11 tied to Google. The 7-year callable notes don’t pay interest. But they yield a profit when shares of the search engine company rise more than 29.5% from their initial value of $1,183.30. The entire principal amount is protected unless the bank defaults.
On March 7, Barclays PLC (NYSE:BCS) (LON:BARC) sold $3.51 million of one-year structured notes tied to Zynga Inc (NASDAQ:ZNGA). The securities yield 11.26% as long as the stock remains below its initial price of $5.58. Investors will receive their money at maturity unless the stock plummets below the initial price.
Apple Inc. (NASDAQ:AAPL) shares fell 0.20% to $527.60 at 1:11 PM EDT.