Following the launch of Natixis' new Phoenix range in Italy at the beginning of the year, SRP spoke to Eric Le Brusq (pictured), global head of equity derivatives about the challenges of the Italian market and the bank's plans for this year.
How would you rate the structured products in Italy this year? Has the Italian 'banking crisis' affected sentiment?
So far in 2017, we've noticed an improved market sentiment in Italy compared to 2016. Italian investors are still selective with their investment decisions, but we've noticed an increased appetite for equity-linked products and investment certificates.
The Italian "banking crisis" has affected sentiment, which has been reflected in increased risk aversion. Today, investors require a solid issuer coupled with tailormade solutions to help mitigate the difficult market environment.
What underlyings, payoff types, investment terms are driving activity? Are Italian investors demanding capital protection?
In the current low rates environment, capital guaranteed issuances have decreased, with investors aware that they have to take some risk to get decent yields. Typically, capital protected structures remain appealing, especially where the barrier is deep and observed on a specific date (European observation).
Meanwhile, structures delivering periodic coupons are still valued; investors have moved to shorter maturity and the autocall feature is still attractive as it gives investors a further possibility to get products redeemed above par. In terms of underlyings, common indices, like the Eurostoxx 50 and FTSE MIB are the most traded, whereas, if we look at stocks, single Italian blue-chip are more appealing.
Natixis introduced a new range of products (Phoenix) that offer high coupons, relatively low trigger barrier and a memory effect. How have they been received?
The Phoenix New Chance is a new payoff for the Italian market and is much appreciated by investors. Indeed, this payoff was awarded first prize at the Italian Certificates Awards 2016, where Natixis won the first prize in the category "Capacitá di Innovazione" (innovation capability).
One of the main concerns for investors who trade the Phoenix worst-of structure is the mark-to-market of a product that tends to align to the worst-of performance if the latter gets close to the barrier. The Phoenix New Chance addresses this issue thanks to the 'new chance' feature. If the stock with the worst performance trades below a melting barrier on the observation date, that stock is removed from the basket. As the worst performing stock can be removed, the mark-to-market is less dependent on these stocks and therefore more stable.
What are Natixis' plans in the Italian market this year?
Natixis strategy is based upon innovation: the Domino Phoenix, the Autocallable New Chance and the Best-Of Autocall are recent examples of the innovative products that we have launched. In this market environment, it's clear that investors are more comfortable investing in familiar products. Therefore, while keeping the main features of these standard payoffs unchanged, we'll innovate by adding simple gimmicks that provide our clients with greater value. For example, our 'domino' feature maximises the probability of a 'phoenix' coupon being paid, while the 'new chance' effect stabilises the mark-to market. Our innovations are not limited to the payoff, we've also been working on the underlyings, notably the so-called 'market access indexes'. The flagship product is the Cac Large 60 Equal-Weight Excess Return, developed by Euronext and licenced to Natixis.
We aim to strengthen our presence in Italy and increase our offering of smart solutions to fit the different needs of Italian investors.
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