Structured discount certificates can play their full strength at times where there is no 'clear sustainable trend in the financial markets, according to Germany's structured products trade association - Deutscher Derivate Verband (DDV).

The association pointed that the Dax index has fluctuated for some time in a range between 12,400 and 12,800 points and that the 'big investment crisis' is prevailing in the current low interest rate environment.

'It is melting away retail investors' capital, who are not proactive or who invest in unsuitable securities,' said Hartmut Knüppel (pictured), chief executive officer and a member of the board of directors at the DDV. 'A rethink is urgently needed here. This is the reason why we wanted to find out how discount certificate are valued from a scientific perspective. The result might surprise some but for investors it is very uplifting.'

According to the DDV research, the current capital market environment is marked by the political agenda of the central banks as well as by the economic and political risks. Quantitative easing policies by many large industrialised countries have resulted in very low or even negative interest rates, and increased volatilities in the equity markets.

Despite the challenging environment DDV's research shows that discount certificates offer a sensible alternative in this market environment, by offering a higher probability for a positive yield.

'In addition, they often offer a much better chance of risk / reward ratio than corporate bonds and other debt securities,' said a DDV spokesperson. 'To this extent, discount certificates are a good way for conservative investors to take the first steps on the stock market. They offer very attractive return chances, coupled with a high safety buffer.'

The DDV official added that further market uncertainty which could also intensify in the coming months 'makes them attractive'.

The comparison of discount certificates performance versus benchmark-investments was based on a Monte Carlo simulation with scenario calculations of five EUR-Priips investor types. The study is based on the interest rates, prices and expected volatility of the Eurostoxx 50 index at the end of 2016.

The study shows that investment into discount certificates had a 99% of delivering a positive yield after one year. The chances for a positive return stay for all risk classes with certificates investments significantly higher than that of the benchmark investments, except for category 5 according to the Priips' risk classification.

For the risk-averse, safety-oriented investors in category 1, discount certificates offer an expected yield which is about 2% points higher than a benchmark-based and money market investments (with the underlying Eurostoxx 50 and an investment term of one year with an expected volatility of 20% p.a.). With an expected volatility of 25% p.a. the expected yield is 3.6% p.a. while the respective benchmark investment in the same scenario would deliver -0.05% p.a.

According to DDV statistics up until April 2017, the overall outstanding volume of discount certificates show that they have a market share of 7.8%, being the third most popular capital at risk certificate after autocallables (19.3%) and reverse convertibles (16%).

The overall certificates' turnover in May 2017 on the Stuttgart and Frankfurt stock exchanges shows that 41% of certificates trading involved discount certificates. Deutsche Bank with 25% market share was the leading provider of discount certificates in May.

According to SRP data, more than 1.5 million discount certificates have been marketed in Germany of which 180,000 are still live products.

Click in the link the DDV research paper (in German). SRP data shows that among German issuers Commerzbank has the highest amount of live discount certificates (26,335) followed by Deutsche Bank (23,664) and DZ Bank (21,772). However, US investment bank Citi is the provider with most live discount certificates (29,207).

SRP data also shows that the most popular underlying among discount certificates is the Eurostoxx 50 index which is featured in over 13,200 products.

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