Increasing sales reverse massive dent to Italian market

Italy's structured products market has endured large outflows since 2010, with the outstanding volume dropping some 54% in that period, to just under US$114bn as of August 21, 2017, according to the SRP database. Notably, the decline in 2016 and this year comes despite increasing sales. Last year saw sales climb nearly 9% on an annual basis to some $21bn, but large maturing volumes, including as much as $45bn this year, have dented volume curves.

Sales in 2017 are well below those of last year, according to the SRP database, with aggregate volumes down more than 40% on an annual basis in the year-to-date.

The apparent slump in Italy is not unique, however, with outstanding volumes in Europe also on the decrease, by some 30% since 2010. Notably, aggregate sales across the continent are also declining this year, with the total at some $65bn as of August 21, down 27% on an annual basis.

The sizable decline in estimated and reported volumes in Italy has not been uniformly distributed, however. In terms of asset classes, equities appear to have become more entrenched as the Italian investor's asset class of choice. Shares and indices accounted for over 78% of sales in 2016, and 87% this year, as compared with about 53% in 2012, according to SRP data. Single shares in particular have more than doubled in terms of generated sales, totalling over $5.6bn in 2016, as compared with $2.5bn in 2012. In contrast, products based on interest rates have lost a lot of ground, dropping to $3.7bn last year, from just under $5.8bn in 2012.

Payoff structures have also seen a big shift in recent years. Notably, reverse convertibles have seen an explosive rise in popularity, generating over 21% of sales on the Italian market in 2016, and just under 40% so far in 2017. In 2012, this payoff structure was seen in less than 1% of sales, according to SRP data. In contrast, floaters have all but disappeared this year, though accounted for over 13% of sales last year. Capped calls are similarly few and far between, sitting alongside worst-of structures, losing 76% and 63%, respectively, of their sales volumes on an annual basis this year.

The market has also become more consolidated in distribution, with the top six distributors accounting for 91% of sales in the year-to-date as of August 21, and 94% in 2016, which compares with 76% in 2012. Conversely, all the major players have broadly maintained or increased their shares and sales volumes over the past five years, with Unicredit and Natixis standing out with large gains. The number of active providers in Italy has dropped to 14 this year, from 19 in 2016 and 59 in 2012.

One area which has not experienced less-than-tectonic shifts in recent years is how products are wrapped in Italy, with certificates accounting for 79% of sales in 2016, but 95% this year. Bonds generated 16% of sales last year.

Earlier this year, Societe Generale launched an ESG-themed bond, a first for the Italian market. The bond which has a US$50m nominal capacity and a US$2,000 minimum investment, will pay annual coupons of 1% for the first two years and, at maturity, a variable coupon linked to the performance of the Finvex Ethical Efficient Europe 30 Price.

SG sees increasing appetite for this type of product in Italy, noting that the Italian Stock Exchange (Borsa Italiana) has launched a dedicated area for green and social bonds, according to Vincenzo Saccente, co-head of public distribution at SG in Italy.

Meanwhile, Unicredit has teamed up with Fairmat to launch RoboCertificate, a new automated platform, which allows investors to create personalised asset allocations using the bank's structured certificates, in another first for the market.

The collaboration comes on the back of an increasing interest by a number of product providers around structured portfolio construction and analysis, according to Matteo Tesser, managing director at Fairmat. 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, according to Tesser.

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