Capital protection is a value we would like to keep at a minimum of 90%, K&H Bank

The Hungarian market has long been dominated by structured funds. Back in 2011, when the SRP Hungary database was first launched, 56 structured funds worth HUF129.7bn (€427.3m) made up 60% of the total market (by sales), and although volumes have decreased in Hungary, the overall market share of funds increased: 36 structured funds issued in 2016 registered sales of HUF103.2bn (68% of the market), according to SRP data. Next to traditional funds, notes, life-insurance products and deposits have also been marketed to local investors, albeit in much lower volumes.

The structured product market in Hungary is led by K&H Bank, a subsidiary of KBC. Last year, the bank sold 22 structured products, predominately funds and life-insurance products, with a combined sales volume of HUF65.4bn (43% market share), while this year the bank achieved a 53% share of the market from 12 products (HUF28.3bn)

SRP spoke to Zsuzsa Zobor (pictured), chief executive officer at K&H Fund Management about its products, capital protection, popular themes, education, and the effect of regulation.

How important is capital protection for your clients?
Protection is important for our defensive clients. That is a value, we would like to keep it at a minimum of 90%, and not go any further down. If market circumstances force further actions, we would lengthen the tenor of a product or put together the underlying assets in a slightly more conservative way.

Which themes are popular as underlying for structured funds?
Both global brands and the pharma sector were very successful for our clients. These themes will come back from time to time, but we also plan to offer products linked to energy, technology (eg. self-driving cars) and increasing consumption.

How well do investors understand the autocallable or protected tracker payoff, which are relatively new for structured funds?
We pay a lot of attention to client information as well as preparation and the education of our investment advisors. On the other hand, we follow the Mifid rules: measuring the risk profile of clients on a regular basis and offering them only the right products. The autocallable structure, for example, is only proposed to our dynamic clients.

Sales volumes for capital-protected funds have decreased over the past few years. Are investors looking at alternatives?
In Hungary, retail government bonds provide very attractive returns for investors of 2%-5% per annum. These bonds are becoming stronger and stronger competitors to capital-protected funds in defensive products.

K&H Bank has distributed a structured bond this year issued via Societe Generale and puts capital at risk. Are Hungarian retail investors prepared to take increased risk in times when attractive yield opportunities are rare?
For clients with a dynamic profile, we offer colourful opportunities, including new structures and new stories behind these products. We tested this product in our private bank. We are hoping to launch similar products, but only in very limited numbers and only for our private banking clients.

Apart from funds and notes, K&H offers three different, continuous structured deposits to retail investors. Are you planning to issue more or other structures?
We have a continuous offer of structured products to K&H retail clients. So we manage to run two to three parallel subscription continuously, which gives a good opportunity for product development.

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