RCNs = Reverse Convertible Notes

Reverse Convertibles Notes are among the most popular yield enhancement products in Switzerland and are suited for investors who are anticipating a sideways or slightly upward trending market. 

The holder of a reverse convertible gives up the potential upside exposure to the underlying asset in exchange for an enhanced coupon. The holder of the product remains exposed to the downside exposure.

The enhanced coupon of the reverse convertible is paid in any case. Because of this, the product will always outperform its underlying asset to the downside. The product will also outperform if the asset does not rise by more than the coupon. Hence, the ideal market scenario for reverse convertibles is the prospect of a sideways trending market.