Unicredit rolls out RoboCertificate for Italian investors

Unicredit has teamed up with Fairmat to launch RoboCertificate, a new automated platform which allows investors to create personalized asset allocations using the bank's structured certificates.

Unicredit's RoboCertificate takes investors' preferences such as investment horizon, risk appetite, market view and underlying sectors, to generate 'optimal diversified portfolios' using certificates issued by Unicredit tradable in the secondary Italian markets (SeDeX of Borsa Italiana and CERT-X of EuroTLX) based on quantitative indicators. RoboCertificate also provides ex-ante probabilistic risk/reward analysis of the products in the portfolio and monitors their performance.

This is the first dedicated automated tool for portfolio construction in Italy's certificates market and shows the bank's commitment to the market and to the end investor, according to Nicola Francia (pictured), head of external network distribution Italy and public distribution Italy and France for Private Investor Products, at Unicredit.

"This is a new service we add to our educational offer for investors active on certificates," says Francia. "We think this development not only will help to make all Unicredit's certificates available under one roof but it is also a very strong educational tool. We think it will also help investors understand and make use of the secondary market to build a bespoke investment portfolio. Overall, this is a tool to increase investors' awareness about what they can achieve with structured certificates and how they can be used to reach their investment goals."

The tool is aimed at helping investors to find products that fit their market views and risk profiles via a series of questions that determine the time horizon, investors' view of the market (very bullish, bullish, neutral, bearish and very bearish), the risk profile (high-risk/high-return, moderate risk/moderate return, low risk/low return), the preferred underlying assets (stocks, indices), preferred market venue, the sectors the investor is seeking exposure to (industrial, infrastructure, financials...), and the amount then investors are seeking to invest.

With all this information the RoboCertificate generates a static report (sent as a PDF via email) with a selection of products and the respective ISIN codes which can be downloaded, so that investors can see which products would be in line with the criteria investors provide, alongside quantitative metrics that will summarise the expected performance of those certificates, according to Francia.

"The tool provides a risk/return analysis of the selected portfolio with indication of expected return, probability of positive and negative returns, [and] maximum portfolio loss," says Francia. "Investors can then access the robo tool and with the codes generated by the report they can see how the performance of a given portfolio is at any time as well as the risk/return analysis updated at that time."

Every other detail is handled by the platform including market data and the access to a curated database of retail products and the possibility of autonomously mapping custom OTC products, according to Matteo Tesser, managing director at Fairmat.

"The goal is to provide a tool to facilitate a personalised portfolio construction but also to increase and promote activity in the secondary market," says Tesser. "Based on a set of preferences investors can find and chose the products that will respond to their needs. This is another example of how we can help the structured products market to move forward with innovative solutions for investors."

The collaboration comes on the back of an increasing interest by a number of product providers around structured portfolio construction and analysis over the past few months, according to Tesser.

"We were already providing structured portfolios fair values and Greeks monitoring tools [to several providers], and realised we could try to offer some improvement with respect to the actual structured portfolios construction techniques used in the industry," says Tesser, adding that currently, the construction of structured portfolios is usually performed empirically by experts or by the means of heuristics (which is not guaranteed to be optimal or perfect, but sufficient for the immediate goals). "This is mainly due to the several implementation challenges staying behind the construction of a quantitative implementation."

Testing the risk/return profile of a portfolio allocation requires the joint simulation of the underlying risk factors -which could be performed with Monte Carlo based forward looking methods or with historical based bootstrapping methods, and the mapping of the non-linear relationships between the risk factors and the products' payout - which can be derived from term data, according to Tesser.

"These types of analyses require significant market data (underlying history, issuers credit scoring, terms information), plus robust simulation models and computational power," says Tesser. "We bundled this framework into the Fairmat Cloud platform within our new portfolio designer tool which enables users to assess given structured products allocations or to generate products allocation proposals (or rebalancing proposals) for different risk aversion levels just by specifying design goals, as it happens in shares/funds asset allocation packages."

According to Tesser, automated advisory and portfolio construction tools are now a trend and will become more and more mainstream because investors want to have control of their investments as well as being able to navigate the pool of products available in the market.

At the moment the tool is focused on Unicredit's structured certificate offering in Italy which amounts to over 800 products. "We think this will help investors to navigate the products on offer," says Tesser. "This kind of development also shows how the market has evolved and how structured products are now seen as any other investment from a portfolio construction basis."

The other goal, says Tesser, is to increase education among investors and provide them with the tools that will help them to see and understand the variables around investment products.

"The tool offers a back-testing simulation functionality so that investors can see how a product has performed in the past, if a product has breached a protection barrier and so on," says Tesser, adding that he expects this kind of tool will resonate with issuers and investors alike. "We are confident that this kind of tool will eventually be used by the wider market."

In terms of suitability, Unicredit is marketing the tool as educational functionality as opposed to an asset allocation device. "If an investor decides to invest in any of our certificates he/she will have to go through the usual suitability checks at the point of sale with his bank, advisor or online broker," says Francia.

SRP 3-minute Q&A: Nicola Francia, Unicredit

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