Belgium market strong on capital protection and currencies

Capital protection and structures denominated in foreign currencies continue to be important themes in the Belgian market. Ninety-five percent of the 221 structured products distributed in Belgium this year protect at least 90% of the nominal invested, while 25% of all products are denominated in currencies other than euro, according to SRP data.

"The biggest demand still is for 100% capital protected products in euro," said Christophe Blontia (pictured), senior product manager at Deutsche Bank in Brussels, one of the Belgian distributors which focuses on fully capital protected products. The bank has launched 32 products this year, all bar one protecting 100% of the capital invested.

According to Filip Gabriels, head of product management (off-balance sheet) at Crelan, capital protection is not necessarily a must for investors, "but there is a need for 100% capital protection".

"[Must] is perhaps not the right word [...], but we do notice that the interest from our clients for products with 90% capital protection is lower," said Gabriels, whose employer has distributed 15 products this year, 14 of which are fully capital protected.

Manufacturers often look to foreign currencies to be able to offer products with shorter tenures. The 166 euro-denominated products with strike dates in 2017 have an average term of eight years, while the remaining 55 products, which are linked to the US dollar (44 products), Norwegian krone (five), Swedish krona and Australian dollar (three products each), respectively, have an average maturity of 5.5 years. Whether or not a product offers full capital protection also affects the duration, with the 153 products that protect 100% of the capital invested having an average term of 8.4 years, compared to just five years for the 55 products which offer 90% capital protection.

"The maturities [of 100% capital protected products in euros] are indeed a little bit longer because the interest rates are still very low," said Blontia. "The low interest is also one of the reasons why we see more equity-linked products this year than in previous years, because technically it is cheaper to use equities as the underlying asset compared to funds. We can offer better terms on equities compared to funds. It is quite costly to do products on funds and on equities we can offer terms of eight, nine or 10 years," said Blontia.

Both Deutsche and Crelan have distributed their fair share of structured products denominated in foreign currencies this year. Deutsche has distribute 14 foreign currency denominate products so far in 2017, including offerings linked to US dollar (eight), Swedish krona (three), Norwegian krone (two) and Australian dollar (one).

"Products in foreign currencies are in demand too, although we do not consider them as capital protected products because of the exchange rate risk," said Blontia. With foreign currencies it is more a case of, when there are upcoming maturities, certain clients wanting to continue to invest in that currency, mainly for diversification in their portfolio, according to Blontia. "If, for example, a fixed-rate bond in Swedish krona is about to mature, we will provide a similar product or an alternative for those investors, especially if we are positive about the currency. And we are very positive about the Swedish krona, and the Norwegian krone too for that matter, as far as the outlook is concerned," said Blontia. "So, on the one hand, this appeals to clients who want to reinvest, but possibly also to new investors who want diversification."

Crelan launched three US dollar products, and two each denominated in Australian dollar and Norwegian krone, respectively, and, according to Gabriels, the bank's clients use this type of product too for diversification and to reinvest. "Besides that, the product conditions of these products are often more interesting because these currencies have higher rates which enables us to offer more attractive terms," said Gabriels.

Euro-denominated structures, however, remain the best-selling products, according to Gabriels. "Mainly the euro products with 100% capital protection, especially the autocallables, but every now and then there are also products denominated in foreign currencies that show good sales results, for example short-term autocallables or products with a minimum return."

The 166 euro products with strike dates in 2017 have an estimated sales volume of €2.1bn, an average of €12.6m per product, while the 55 products denominated in foreign currencies collected combined sales of the equivalent of €457m, which translates in €8.3m per product.

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