There are three major product structures that are best adapted to the present context of low volatility and high trading levels of traditional indices, according to Yoni Kabalo (pictured), partner at i-Kapital. These include "phoenix" structures distributing coupons even in the case of market decline, as well as products with descending autocall threshold or daily redemption windows.

"The advantage of the [phoenix] structure is that even if the product fail to be redeemed early, the investor is still entitled to an annual, semi-annual or quarterly coupon," said Kabalo. "This is interesting because, with the current levels indices are at, some investors are a bit skeptical about the anticipation of a sustainable rise. The idea is to highlight that the coupon can be secured even if the underlying falls [by 20%-40%]."

According to Kabalo, products with descending autocall thresholds are also popular. "Whether decreased by 2% to 5% each year, depending on the underlying, the advantage of the descending autocall barrier is that if you end up with a bear or wobbling market, you will have a much stronger probability for early redemption of the product," said Kabalo.

The French brokerage firm, that began white-labelling products in France two years ago, is currently selling Autocall Plus Juillet 2017, a life-insurance wrapped structured note available for subscription until July 28. The 10-year play is linked to the Eurostoxx 50 and offers the possibility for early redemption every quarter after a year and half after the product's strike date. The product was issued by Societe Generale and is listed on the Luxembourg Stock Exchange.

"The quarterly window for an early exit is one of the big advantages of the product, because given the current high levels of the indices, having that possibility annually is not sufficient," said Kabalo. "If the window is missed on the valuation date (which can happen for one or two days), the investor would have to wait another year. That would take a bit more time than with a quarterly valuation multiplying the chances for the investor to go out quickly and secure the coupons."

According to Kabalo, i-Kapital seeks to adapt its offering to the market climate and respond with opportunistic products. "To maximize the probability for an early exit, i-Kapital's completes its offering range with a daily observation feature, starting from the first year of investment," said Kabalo.

The frequency of the early redemption dates has increased significantly year-on-year, according to SRP data. The number of products with annual valuation dates stands for 63% during the first half of 2017 down from 75% one year ago. On the contrary, products with more frequent valuations have increased: semi-annual (8%, +1%), quarterly (12%, +4%), monthly (7%, +3%), daily (9%, +2%).

"The trend is related to the current [trading] levels of indices," said Kabalo. "Two years ago, in April 2015, Eurostoxx 50 stood at 3,800 points, and so far it has never reached those levels again. This means that many of the products that were launched in March and April 2015, failed to hit the redemption barrier. This is exactly what investors want to avoid staying locked if the market ever hit a bottom."

With the new Autocall Plus Juillet 2017, i-Kapital is returning somehow to the fundamentals, according to Kabalo. "We offer something classic, readable and, which we think, is able to resist better if there is to be a next drop or small correction in the markets," said Kabalo. "We agree that there is a certain return to traditional indices, especially Eurostoxx 50, because the conditions are better compared to other traditional indices. For example, investing in the Cac 40 rather than in the Eurostoxx 50 would have costed between 0.5 and 1% of coupon to the investor, depending on the structure."

Another reason to go with the Eurostoxx 50 index is based on legal grounds and follows the AMF decision last January warned against proprietary or strategy indices which are counted as one mechanism within products, according to Kabalo.

"If we want to make a public offer in France, we are limited to three mechanisms," he said. "This significantly reduces the variety of possible structures built on strategy indices and limits the differentiation. If, hypothetically, we wanted to build a product distributing coupons during the investment period, we would have been obliged to opt for a classic index in order to make a public offering."

From a market perspective, the Eurostoxx 50 tends to better resist drops and, in any case, products' valuations tend to be better, according to Kabalo. "With investors becoming more cautious due to the rather high [entry] levels from which we start, that further tilts the balance somewhat back to Eurostoxx 50 compared to strategy indices, even if this means to give up a 1 or 2% overall yield compared to the one that a strategy index would bring."

In addition, the product's protection barrier which, set at -50%, is below the lowest historic price ever hit by the Eurostoxx 50 [around 1,800 points in the aftermath of the 2001 dot-com crisis and following the subprime crisis in 2008], provides extra peace of mind, according to Kabalo. "With strike levels of the Eurostoxx 50 at around 3,500 points, this would make for a protection of up to 1,700-1,750 points."

For the more dynamic investor profiles i-Kapital is offering two products linked to the SBF Top 80 EW Decrement 50 Points index (SBF). Being geographically less diversified, makes this index a little bit more volatile and provides for better conditions compared with Eurostoxx 50, said Kabalo.

"The decline in volatility and interest rates have recently undermined the conditions on the products, while the SBF still allows to generate a high coupon conditions for the more dynamic investors," said Kabalo. "The index being focused only on the French market further spurs rather positive expectations leveraged by the "Macron effect". The outlook for the French market is now to slightly outperform Europe in the months or years to come, hence focusing on the SBF allows us to play more on this dynamic and to offer more attractive conditions compared to the Euro iStoxx EWC 50, for example."

From June 30th the firm's Horizon Rendement Juillet 2017 and Athena Performance Juillet 2017, will be available for subscription.

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