The index that the note tracks was created in November and although it has been untradeable, Credit Suisse says that if it had been available, the monthly distributions would have annualized to a 9.45% distribution percentage. It is very important to understand that any actual payments made to note holders could vary.
The timing of this launch may turn out to be poor given the recent news of investors possibly getting hurt by equity-linked structured products, a different type of note tied to Apple (AAPL), that could force note holders to buy AAPL stock near $700, even though it is now trading well below $500. While the structure of GLDI is nothing like the AAPL notes, investors may be wary of products linked to stocks or ETFs offering potentially high yields. The notes linked to AAPL were issued with an 8% yield. This episode has raised questions about whether the AAPL notes were issued to investors as an inexpensive hedge for a position in AAPL stock.
Credit Suisse will hedge its exposure to GLDI by trading GLD through its "affiliates." While I am satisfied that the bank's primary objective of GLDI is to get paid for offering an investment product to the public, as opposed to trying to hedge a proprietary position in GLD, this is something that individuals need to weigh for themselves.
One last point is that by utilizing a strategy that caps monthly gains at 3%, the disaster insurance element of owning GLD is at the very least muted if not eliminated altogether. However, GLDI should capture a large portion of a slow steady rise in the price of gold that might occur if inflation rates increase meaningfully over an extended period.
At the time of publication, the author and a client held positions in GLD, although positions can change at any time.