Goldman Sachs has licensed the newly launched iStoxx Europe Origin Equal Weight Decrement 5% Index to be used as a basis for structured products. The new index offers exposure to the largest market capitalisation stocks of France and Germany while broadening the scope of their respective reference benchmarks [Cac 40 and DAX].

The index is the newest addition to Goldman Sachs' range of optimized public indices, with synthetic dividends and it seeks to address the constraints imposed by adverse market conditions of low interest rates and low volatility, according to Marine Abiad (pictured), director distribution France, Goldman Sachs. "The expertise Goldman Sachs acquired on this type of underlyings makes us more comfortable to develop and promote this type of indices," said Abiad.

The iStoxx Europe Origin Index 100 Equal Weight Decrement 5% is comprised by the 60 largest companies in terms of floating market capitalization in France and the 40 largest companies in terms of floating market capitalization in Germany.

The index adds to Cac 40 the next 20 largest stocks from France, while adding to the DAX the following 10 largest stocks from Germany. "By providing additional underlying stocks' exposure than benchmark indices, the iStoxx Europe Origin 100 EWD 5% Index offers a stronger diversification, potentially reducing its risk exposure to single stock moves," said Abiad.

The underlying stocks listed outside the DAX and the Cac 40 indices have a two-fold advantage, according to Abiad. "On the one hand, they are likely to be integrated within the main indices during the quarterly rebalancing, which could lead to important purchases from asset managers replicating the index," said Abiad. "On the other hand, as many investors have to replicate the benchmarks within their portfolios, the underlying stocks currently outside are potentially more attractive to buy, notably thanks to lower price-to-book ratio (market cap divided by accountable value)."

The equally-weighted index is calculated by reinvesting 100% of the net dividends detached by the shares of which it is comprised and subtracting a fixed rate of 5% p.a. This is an advantage at the product structuring level, as the net dividends improve the pricing conditions.

The licensing of the index is in line with Goldman Sachs' ambition to gradually direct retail clients towards the simplest possible structures paired with either partial or total capital protection, according to Abiad. "Building up on Goldman Sachs' attractive funding and the relatively cheap volatility, this type of investment proves of real interest to the risk averse client segments as it allows the arbitration from [declining] euro-denominated mutual funds," she said. "We build Goldman Sachs' strategy up around the simplest possible payoffs. "This is certainly a payoff we strongly encourage our distributors to make retail investors more aware of."

Two 100% capital guaranteed autocallable notes launched in collaboration with Zenith Capital and DS Investment Solutions are the most recent testimony of Goldman Sachs commitment to this shift in the payoff paradigm. These products, distributed as public offers, are both linked to an optimised index: the iStoxx Europe Origin 100 EWD 5% for Zenith Capital and the Solactive Eurozone 50 EWD 5% for DS Investment Solutions.

In 2017, the US bank was behind a total of 21 medium-term notes hedged by Goldman's financial engineering team and aimed at French retail investors by various providers such as Tradition, Kepler, Zenith Capital, Equitim, Exclusive Partners, i-Kapital, DS Investment Solutions and UBS, according to SRP data. Goldman is also the bond provider for six products currently open for subscription.

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