The second tranche offered by the bank is part of its extended partnership with UBS.

First National Bank (FNB) has selected a luxury goods-themed index with a decrement overlay for its second structured note tranche in South Africa, issued by UBS.

“Luxury goods can be sold online thus maintained their value in times of pandemic - Samukelo Sifiso Zwane

The fully principal-protected FNB 100 Capital Preserver Autocall 2 (USD) is linked to the Bloomberg Luxury Series 1 Decrement 5% Index EUR (LUXS1E) with a five-year tenor. 

“[The underlying index] is inflation resilient. Generation X (people born in 1965 and 1980) identifies with luxury goods which provides a strong growth market,” said Samukelo Sifiso Zwane (pictured), head of product, wealth and investments at FNB, a subsidiary of FirstRand Bank. “Luxury goods can be sold online thus maintained their value in times of pandemic.”

Issued by UBS and listed on the Johannesburg Stock Exchange (JSE), the autocallable note is available to FNB’s wealth clients and independent financial advisors until 14 June with a trade date of 21 June. It has a minimum ticket of US$6,000 and an initial one-off fee of three percent.

The indicative return is between seven and eight percent pa. subject to positive underlying performance. The autocall payoff period starts from the third year of the investment term and has an annual observation frequency.

Launched on 12 September 2022, the LUXS1E Index is computed by decreasing the return of the total return index - Bloomberg Luxury Series 1 Index (EUR) - by five percent. It is an equal weighted equity benchmark consisting in a fixed basket of 19 European and American stocks deriving most of their revenues from the sale of luxury products.

This is the second ZAR-denominated principal-protected structured certificate linked to the Bloomberg Luxury Series 1 Net Return Index EUR, which was also issued by UBS, in the South African market. The five-year uncapped participation note was priced on 14 June 2023 and issued on 21 June 2023.

“Decrement features are used by some of the major structured product distributors [in South Africa],” said Zwane. “Consumer’s main concern is about the impact of the decrement on the pay-off profile. They are comfortable if it improves the payoff profile.”

Luxury sector

With a bullish view in the luxury sector, the commercial bank is considering other payoff profiles referenced to the LUXS1E index. “We are also looking at other index themes for structured notes, such as artificial intelligence and agriculture,” said Zwane, adding that the next tranche is expected to be launched in August.

Outside of South Africa, UBS issued an express certificate with memory coupon linked to the Bloomberg Luxury Series 1 Decrement 50 Points (1000 on Sep 21) EUR Index in France on 15 December 2023 with a traded notional of €30m (US$32.3m). BNP Paribas has also marketed 86 unit-linked insurance plans linked to the Bloomberg Luxury 2021 Decrement 50 Point EUR Index (LUX21T) in its home market since March 2022. 

The latter Bloomberg index was also traded through three certificates by both of banks in Switzerland in 2023, according to SRP data.

Another luxury goods-focused index, the Solactive Luxury Selection PR Index was used by Société Générale in France in 2023.

Recent activity

FNB is also offering the FNB 100 CapPreserver Participation 2 (ZAR) on the paper of Rand Merchant Bank, the affiliated investment bank to FirstRand. The five-year 100% capital protected note tracks the Eurostoxx50 Index with a participation rate of 200%, and has a minimum ticket of ZAR100,000 (US$5,400).  

“This product is exposed to EUR/ZAR currency movements and any appreciation in the Rand would reduce a clients return while a depreciation in the Rand against the Euro would enhance a clients return,” said Zwane.

The second tranche offered by FNB represents its extended partnership with UBS. As part of its maiden tranche offering, the commercial bank pitched two USD-denominated autocallable notes linked to the MSCI World Index on the paper of the Swiss bank last October, in addition to a fully principal-protected participation note issued by Rand Merchant Bank.

Out of the two USD-denominated products, the one offering 80% principal protection was eventually withdrawn due to lack of investor demand.

“In our initial tranche there was little appetite for capital loss on the dollar based structured products,” said Zwane, noting that the partial capital protected structures could be resumed if there is demand.

The other two - the FNB 100% Cap Preserver Participation 1 (ZAR) and FNB 100% Cap Preserver Autocall (USD) – were traded at ZAR50m (US$2.7m) in total.

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