Risks & Considerations

The US Innovative Leaders 5 Index only calculates the exposure to a dynamic, hypothetical portfolio that tracks the excess returns of the underlying components and is purely synthetic. There is no actual portfolio of assets to which any person makes any investment or has any ownership interest.

BNP Paribas makes no recommendation as to the suitability for investment of the US Innovative Leaders 5 Index or any products or strategies based partly or wholly on US Innovative Leaders 5 Index. You should reach a decision after careful consideration with your advisors.

There is a risk that the rules-based methodology of the US Innovative Leaders 5 Index does not meet its stated objectives, including meeting its annualized target volatility of 5%, resulting in underperformance of the components that comprise the Index.

Performances among the underlying components may become highly correlated from time to time. High correlation during periods of negative returns among underlying components representing any one sector or asset type that have a substantial weighting in the US Innovative Leaders 5 Index could have a material adverse effect on the levels of the US Innovative Leaders 5 Index, which could in turn negatively affect the performance of any product or strategy based partly or wholly on the levels of the US Innovative Leaders 5 Index.

The US Innovative Leaders 5 Index and its components (and subcomponents thereof) are subject to legal and regulatory regimes in various regions and, in some cases, in other countries that may change in ways that could negatively affect the US Innovative Leaders 5 Index or its components (or subcomponents thereof). Changes to the applicable legal or regulatory regimes may have a negative impact on the US Innovative Leaders 5 Index level. The components (or subcomponents thereof) of the Index that are traded on one or more public exchanges are subject to the rules of the relevant exchange.

The US Innovative Leaders 5 Index is launched January 28^th, 2020. The performance shown prior to this date is hypothetical past performance, based on hypothetical back-tested information. This website also contains certain performance data based on back-testing, i.e., calculations of the hypothetical levels of the US Innovative Leaders 5 Index as if it had actually existed during a defined period of time, and may in certain circumstances contain simulated performance levels where the US Innovative Leaders 5 Index has recently been established or issued. For time periods prior to the launch of any component included in the Index, back-testing uses alternative performance information derived from a proxy with similar asset exposure, rather than performance information for the relevant component.
Further, you must note that such analysis is based on a number of working assumptions that may not be capable of duplication in actual trading terms. Unlike actual performance records, hypothetical or simulated performances, returns or scenarios may not necessarily reflect certain market factors such as liquidity constraints, fees and transaction costs and must be considered as illustrative only. Actual historical or back-tested past performance does not constitute an indication of future results. The actual performance of the US Innovative Leaders 5 Index may bear little relation to its hypothetical historical results.

The US Innovative Leaders 5 Index is a custom Index developed by BNP Paribas, the Index Sponsor. There is limited information relating to the US Innovative Leaders 5 Index that is publicly available. In addition, publicly available information on the US Innovative Leaders 5 Index, its methodology and its components is limited.

The US Innovative Leaders 5 Index‘s daily volatility control allows the US Innovative Leaders 5 Index to dynamically adjust the value of the hypothetical exposure to the portfolio the Index is based on, 10-Year US Treasuries and any cash component, depending on the volatility environment. However, the risk control overlay might limit overall levels of the US Innovative Leaders 5 Index in rising equity markets and may provide imperfect, limited protection in falling equity markets, particularly against sudden, large equity losses. No assurance can be given that the US Innovative Leaders 5 Index methodology will achieve its target volatility goals or that products or strategies based partly or wholly on the levels of the US Innovative Leaders 5 Index will outperform any alternative investment.

The closing level of the US Innovative Leaders 5 Index includes a deduction from the aggregate values of its components of an annual fee equal to 0.50% per annum. As a result of this deduction, the value of the US Innovative Leaders 5 Index will trail the value of a hypothetical identical portfolio from which no such amount is deducted.

The closing Level of the US Innovative Leaders 5 Index is net of BNP Paribas’ replication and rebalancing costs associated with the Index. As a result of these costs, the value of the US Innovative Leaders 5 Index could trail the value of a hypothetical identical portfolio from which no such amount is deducted.

In general, returns from investing in futures contracts are derived from three sources: (1) changes in the price of such futures contracts (known as the “price return”), (2) profit or loss realized when rolling from a futures contract with one expiry date to another futures contract with a different, generally later, expiry date (known as the “roll return”) and (3) interest earned on the cash (or other) collateral deposited in connection with the purchase of such futures contract (known as the “collateral return”). The components of the US Innovative Leaders 5 Index that seek to track futures contracts generate “excess returns”, meaning the sum of the price return and roll return with respect to the underlying components. As a result, with respect to the US Innovative Leaders 5 Index’s underlying components that seek to track futures contracts, an investment in an instrument linked to the US Innovative Leaders 5 Index will not generate the same returns that would be obtained from investing directly in future contracts that underlie such underlying components because the collateral return is not used in calculating the “excess return” Index.

The policies and calculations for which the calculation agent is responsible could have an impact, positive or negative, on the level of the US Innovative Leaders 5 Index. BNP Paribas and its affiliates are under no obligation to consider your interest as an investor in a product linked to the US Innovative Leaders 5 Index.

The US Innovative Leaders 5 Index, on each day on which it is calculated, adjusts its exposure to its components in an attempt to maintain an annualized volatility of 5%. If the aggregate weight of the components is less than 100%, the US Innovative Leaders 5 Index will allocate exposure to a hypothetical cash position and/or a hypothetical position in 10-Year US Treasuries. As a result, the US Innovative Leaders 5 Index may underperform a similar index that provides 100% exposure to its components. The hypothetical cash position is an uninvested position that does not earn interest or any other return.

Under normal circumstances, equity or commodity futures may exhibit significantly higher volatility than the target volatility of 5%. Accordingly, the “volatility control” mechanism of the US Innovative Leaders 5 Index may have the effect of skewing allocations among components in the US Innovative Leaders 5 Index toward components that provide exposure to fixed income assets (which typically have lower volatility than components that provide exposure to equity or commodity futures) or to cash (which has zero volatility). Index components that typically have lower volatility may have lower return potential than components that typically have higher volatility, and any allocation to cash will earn no return at all.

Moreover, if the US Innovative Leaders 5 Index has a relatively high allocation to components that provide exposure to fixed income assets, it will be particularly sensitive to factors that adversely affect the value of fixed income instruments, such as increases in interest rates or declining perceptions of credit quality. A high allocation to components that provide exposure to fixed income assets may also cause the US Innovative Leaders 5 Index to underperform a portfolio more heavily weighted with higher volatility assets under certain circumstances. For example, in an equity bull market that is accompanied by rising interest rates, a portfolio heavily weighted with components that provide exposure to fixed income assets might decline in value as a result of the rising interest rates, while a portfolio heavily weighted with components that provide exposure to equities would appreciate in value.

Certain criteria are systematically applied to the US Innovative Leaders 5 Index to exclude to determine eligibility of equity securities as Index components. Criteria are based on corporate social responsibility principles and economic and trade sanctions. Application of these criteria may result in the exclusion of certain equity securities as Index components. Data used to determine eligibility may be derived from one or more public sources or other sources deemed necessary or appropriate by the Index Sponsor. The exclusion of certain equity securities may have an unintended positive or negative impact on the performance of the US Innovative Leaders 5 Index. None of the BNPP Entities shall have any liability for the application of such criteria or any inaccuracies in such data or relevant information provided by third parties and shall not be responsible for any inaccuracies or errors in the Index level. Additional information regarding the relevant criteria is available from the Index Sponsor upon request.

Certain calculations or determinations related to the US Innovative Leaders 5 Index or the Index components are made by the Index Calculation Agent based on proprietary data, commentary, opinions or other information provided by one or more third party sources. Any such data, commentary, opinions or other information may have an indirect and unintended positive or negative impact on the US Innovative Leaders 5 Index. The Index Sponsor and/or the Index Calculation Agent receive such data or information subject to an agreement with the relevant provider, subject to certain restrictions, and may pay a fee for such data. The Index Sponsor and the Index Calculation Agent may be restricted from providing the data or information to any other person, and are under no obligation to do so.

As interest rates rise, the value of a fixed income security generally tends to decline. Securities with longer durations tend to be more sensitive to interest rate changes, usually making their prices more volatile than those of securities with shorter durations. To the extent the US Innovative Leaders 5 Index is comprised of government debt securities with longer-term durations, rising interest rates may cause the Index Level to decline significantly. An increase in interest rates may lead to heightened volatility in the fixed income markets and adversely affect the liquidity of government debt securities.

Certain Index components of the US Innovative Leaders 5 Index are futures contracts. The return of a futures contract depends on the price of the underlying asset referenced by the futures contract and a range of other factors, including, but not limited to, changing supply and demand relationships, interest rates, governmental and regulatory policies and policies of the exchanges on which futures contracts trade. The futures markets are subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity in the markets, the participation of speculators and government regulation and intervention. These and other factors can cause the prices of futures contracts to be volatile, which could have an adverse effect on the US Innovative Leaders 5 Index.

Futures contracts, by their terms, have stated expirations. As futures contracts approach expiration, they are synthetically replaced by a futures contract with a later expiration. Excluding other considerations, if prices are higher in the distant expiration or delivery months than in the nearer expiration or delivery months, the notional purchase of the futures contract with the later expiration date would take place at a price that is higher than the price of the futures contract that is expiring, thereby creating a negative “roll return.” Negative roll returns may have a negative effect on the US Innovative Leaders 5 Index. Because of the potential effects of negative roll returns, it is possible for the US Innovative Leaders 5 Index to decrease over time, even when the near-term or spot price of the underlying futures contract(s) is stable or increasing.

Certain Index components are comprised of futures contracts debt securities issued by governments of one or more countries. There are risks associated with the markets in such debt securities which may be influenced by a number of factors, particularly the yields on these instruments as compared to current market interest rates and the actual or perceived credit quality of the government issuing the underlying debt securities. Any perceived decline in the creditworthiness of a government that issues securities as a result of a credit rating downgrade or otherwise, may cause the yield on the relevant securities to increase and the prices of such securities to fall, perhaps significantly, and may cause increased volatility in local or global credit markets. Any such change may adversely impact the level of the relevant Index components and the US Innovative Leaders 5 Index.

• The US Innovative Leaders 5 Index involves daily rebalancing that is applied to the components. Changes in the value of the components may offset each other.
• BNP Paribas is the sponsor of the Equity Index and Bond Futures Index that underlie the US Innovative Leaders 5 Index.