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Index-Linked Bond “Pharmaceutical Companies 2017” Maturity Report

Investment period Redemption value Participation rate

3 years

20.02.2017-15.04.2020

110,80 %

of nominal value

100 %

 

Underlying reference. The performance of the bond depended on the underlying basket of 10 listed European and North American pharmaceutical companies’ shares. At the maturity of the bond, the result of the four best performing equities was replaced by an increase of 13%.

Index-linked bond performance review

The bond was structured to benefit from the appreciation of a basket of 10 listed European and North American pharmaceutical companies’ shares. The pharmaceutical sector is traditionally regarded as less exposed to economic cycles and thus as being more stable in terms of profitability than more cyclical sectors. Ageing Western population and growing wealth of the emerging economies result in increasing demand for medicine providing benefit for the healthcare companies. As a result, the bond had good return potential at the time of issuance.

Synchronized global economic growth as a result of monetary stimulus, benign inflation and low interest rates made up a perfect environment for global equities. As a result, during big part of the bond tenor global equity prices were enjoying stable increase. However, there were also some periods of high volatility. For example, tighter monetary policy in the US and trade war resulted in global economic slowdown leading to turbulence in the market in 2018. And just before the maturity of the bond, starting from second half of February 2020, really unprecedented events unfolded. Global quarantine and virtual shutdown of world economy caused by COVID-19 pandemic resulted in violent drops in prices of almost all assets.

Healthcare sector being a more defensive sector tends to outperform during turbulent times. As a result, the underlying equity basket and the bond itself managed to outperform the world equity market. Global equities, as measured by All Country World index, did actually decline by about 1% during the tenor of the bond. Consequently, the bond offered investors reasonable return during tough times, especially considering its low risk.

Index-linked bond performance

Further investments

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This material cannot be considered as a personal recommendation for orders with financial instruments. The information contained in this material is for informational purposes only. Index-linked bonds are considered to be complex financial instruments that are not suitable for all investors. The index-linked bond offer is prepared in accordance with the Final Terms containing all information on the offer, the structure of the product, its maturity and risk factors. In accordance with the Law On Personal Income Tax of income received from index-linked bonds is taxed. Prior to any investment decision, it is recommended to get a professional investment advice. Luminor Bank AS is not liable for any damages that might be faced by the customer due to reliance upon information given therein, nor it gives taxation, accounting or legal advice.

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Luminor Bank AS in Latvia is represented by Luminor Bank AS Latvian branch.