GS Finance’s catapult on Euro Stoxx 50 offers enough premium even for bulls

By Emma Trincal

New York, March 22 – GS Finance Corp.’s 0% market-linked securities – autocallable with leveraged upside participation and contingent downside due April 1, 2027 linked to the performance of the Euro Stoxx 50 index – can deliver two sources of return, either once from a call premium or at maturity with growth. The market has coined the term “catapult” to designate this kind of structure.

Advisers said they liked both outcomes.

If the index closes at or above its initial level on March 28, 2025, the notes will be automatically called at par plus a call premium of at least 12.8%. The exact premium will be set at pricing, according to an FWP filing with the Securities and Exchange Commission.

If the notes are not called and the index finishes at or above its initial level, the payout at maturity will be par plus 1.5 times the index gain.

If the index declines but finishes at or above its 75% downside threshold level, the payout will be par. Otherwise, investors will lose 1% for every 1% that the index’s final level is below its initial level.

Lagging index

“It’s perfect if you don’t believe in mean reversion. The Euro Stoxx has been making progress in the past 18 months but that’s because it had underperformed so much and for so long,” said Steve Doucette, financial adviser at Proctor Financial.

The index has rallied since October 2022 along with the U.S. market.

“But if you go back 10, 15 years you’ll see how much it has underperformed,” he said.

“It’s really a great note if you don’t believe the gap will close any time soon.”

The size of the premium made the note attractive for the not so bullish investor.

“You buy this note, the Euro Stoxx is up a little bit a year from now and you capture a potential outperformance with 13%, You can then allocate it to your global asset allocation,” he said.

This was the good scenario.

Uncertain outcomes

“A year from now, the Elections will be over. The market could really jump up and you might underperform.

It’s going to one of those two scenarios, and we don’t know which one is going to happen,” he said.

If the market is negative on the call date, investors will then own a “growth note,” providing many benefits, he added.

“I like the barrier. I think it’s fine for a three year. But I like even more the no-cap especially when you get the leverage on there,” he said.

As long as investors are open to the possibility of a call with a 12.8% premium, the note was attractive, he said.

“The only downside is if the inflation subsides, and the Fed reduces interest rates. In that case the market could go nuts. You could be missing out on a lot of upside. But 13% over one year is not the end of the world. So, whether you get called or not, it’s a neat way to capture some decent return,” he said.

Equity replacement

Matt Medeiros, president and chief executive of the Institute for Wealth Management, also liked the structure.

“It’s an interesting note. If I was called after a year, I would think 12.8% would be a nice return for a year,” he said.

“If I thought the 12.8% was not high enough, I would look for a regular leveraged note without a call provision, something with a cap and I would seek a more generous cap than 12.8%,” he said.

Medeiros liked the two types of payout.

“I’m happy if I get called. But if I don’t get called, I like the leverage with no cap,” he said.

“Both situations are attractive.”

Medeiros said he could use the note as equity replacement in his portfolio.

“The 12.8% premium is an equity-like return. I wouldn’t look at it as income. Income has a different risk element to it and different return characteristics,” he said.

Risk mitigation

One of the reasons this adviser was comfortable with the potential returns was because of the downside protection he would get.

“When I buy a structured note, I first want some downside protection and then, I look at the amount of return I can get,” he said.

“Here if I’m called, I get par. I have full protection. If I’m not called, I have the 75% barrier.

“In my view the odds of piercing the 75% barrier over a three-year term are small.”

The term of the notes itself helped mitigate the risk.

“I also like the three-year tenor because if I don’t get called, I still have two years to make up for the negative performance. Two years is enough,” he said.

Risk-adjusted return

The potential gains were in line with the risk taken.

“If I look at the call premium, 12.8% per annum is fine. If I miss the call, I have the potential to get unlimited growth with 1.5 times leverage, which would be very attractive,” he said.

“Overall, the risk-adjusted return seems really attractive.”

Medeiros said he did not have any specific view about the European stock market other than its relative undervaluation relative to the United States.

“The only unfavorable outcome would be if the Euro Stoxx jumped in excess of the 12.8% premium.

“That would be the concern of a bullish investor, I guess.

“But it wouldn’t be mine. If I was bullish, I would be buying other things, such as an ETF or even a leveraged note, point-to-point with no call,” he said.

The notes are guaranteed by Goldman Sachs Group, Inc.

Wells Fargo Securities LLC is the agent.

The notes are expected to price on March 25 and to settle on March 28.

The Cusip number is 40057YT78.

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