The aftershocks of the Covid crisis continue, leaving no market untouched.
Credit Suisse has decided to delist the foregoing exchange-traded notes (ETNs) to better align its product suite with its broader strategic growth plans. The Swiss bank’s decision earlier this week to dramatically cut back its ETN business, following the delisting of nine ETNs with close to US$3 billion in assets under management and the suspension of further issuances, shows the hit taken by this part of the US$4.4 trillion US exchange-traded products industry.
The recent pandemic-fuelled market turmoil has put ETNs under a bad light as their vulnerability to extreme market swings and losses. Those with geared (leverage/inverse) exposure were laid bare earlier this year, when a number of providers including UBS and Citigroup delisted and liquidated tracker products.
One area that’s also been affected by the covid chaos is the underlying space, specifically indices. They have also been subject to a few tumultuous months, with further uncertainty ahead.
Ricardo Manrique, director, derivatives strategy at London Stock Exchange Information Services, told SRP that recent market turbulence has accelerated interest and demand for more reactive index strategies.
“Factor investing is certainly an area of focus for us…I think we saw some strategies perform relatively well [recently] but then we saw other strategies like low vol not performing that well,” he said. “It was driven by an observed smile in the volatility profile of stocks with both low performing and high performing stocks exhibiting high levels of volatility.
What has been interesting is how the sector exposure of underlying strategies has also helped some of the performance. Some of the rebound has been very sector exposure specific. For example, within the US we have seen software, tech and pharma as the big drivers of the rebound in US equities, that is a big difference from the sector exposure of global equities.”
Staying in the underlying space, Banco XP has launched its very first autocallable note linked to ‘stay at home’ companies Amazon, Netflix, Zoom and Peloton amidst the economic turmoil brought on by the Covid-19 pandemic. The main benefits of the certificate of structured operations note include exposure to the global technology sector (which is not present on the Brazilian Stock Exchange) with protected capital, the possibility of early closure every three months with an accumulated coupon payment, and quarterly coupons between 1.7 and 2.3%. The five-year note has a start date of 1 July 2020 with a maturity date of 1 July 2025, and contains 20 quarterly observation periods.
One country SRP doesn’t write about often enough is Poland, a market that is growing in dynamism. The structured products market in Poland is highly competitive, especially among issuers, but also in terms of competition with other investment products, such as investment funds.
Raiffeisen Centrobank (RCB) regional manager Mariusz Adamiak told SRP about the launch of the first long participation certificates by RCB on the Warsaw Exchange. The new closed-end trackers on Brent Crude oil were launched to meet the high interest in oil-based products, according to Adamiak, who notes that the structure of the two new fixed-term participation certificates has been simplified and there is no rollover mechanism. The trackers have a fixed maturity and expire two weeks before the maturity of the underlying futures.
For context, in April and May 2020, the trading volume of structured products on the Warsaw Stock Exchange exceeded quarterly levels before Covid-19. In Q1 2020, the trading volume of structured products reached PLN 790.3m (US$200m), more than three times higher than a year ago.
A couple of high-profile people moves also made the headlines last week.
Henry Hui, the Honk Kong-based head of structured products for Asia at BNP Paribas Wealth Management has left the French bank. Hui joined BNP Paribas in November 2018 as the wealth management arm of the French bank began to build up its offering in the region. Hui was responsible for originating, structuring and marketing structured products to clients across all asset classes, and reported to Lemuel Lee, deputy head of investment services, Asia Pacific.
Société Générale made two senior appointments within its global markets division aimed at equity derivatives research and strategy, and growing its Swiss platform. Kokou Agbo-Bloua was promoted as the bank’s global head of economics, cross-asset & quant research within the bank’s global markets division, in addition to his existing responsibilities as global head of flow strategy & solutions. It also announced the appointment of Enrico Vietti as head of global markets sales for Switzerland, effective the 13 July 2020.