Issuers of structured certificates in Germany are moving to capitalise on the Dax’s recent strong performance, which reached an all-time high of over 12,000 points at the beginning of the week, before a correction “that will certainly come”, according to Anouch Wilhelms, director, equity markets and commodities, public distribution at Commerzbank.
The Dax has increased from 9,000 to 10,000 within eight months and from 11,000 to 12,000 within just the last four weeks.
“A clear reason for that [performance] is the QE decision of the ECB,” said Wilhems. “Many analysts had previously expected that prices would rise and the support of the ECB has not even been priced in yet.
The fear of a correction is growing, said Wilhems, and therefore it is important not to get “too euphoric”.
“Many investors have earned more using certificates in the rally than by investing in the Dax directly, but conscious risk management is vital,” he said. “In a clear trend, factor certificates can return an above-average yield as long as there is a clear market opinion.”
The performance of the Dax has had a positive impact in the certificates market, with turnover increasing since the beginning of the year and over the final six months of last year, said Nicolai Tietze (pictured), director at Deutsche Bank. “Many institutional and retail investors seem to [have] rediscovered the certificates market,” said Tietze, adding that this trend has also materialised as investors look for alternatives to savings accounts.
However, said Tietze, investors should be aware of an increasingly likely correction and protect their portfolios with “traditional put warrants” to avoid having to sell the whole portfolio in the event of a market correction.
“For other investors the end of the bull market has not been reached yet,” he said. “How the market will develop I am not able to say, but this is not the task of an issuer. We need to ensure that we offer products which are sought after by investors.”
As a market leader on the certificates market, said Tietze, Deutsche Bank puts a lot of continuous effort to offer investors “a perfect product range”.
“Many short products in the leverage products segment have knocked out due to [recent] price increases,” he said. “These are continuously replaced by products with higher strike prices. As there is also the need to issue new long products, the number of our outstanding products tends to increase.”
The German derivatives association Deutsche Derivate Verband (DDV) has reacted to the current market environment with the introduction of a free early warning system app for retail investors in certificates via ddv-risikomonitor.de, which allows investors to receive an automatic email as soon as the risk class of a certificate in their portfolio changes.
Retail investors who are thinking of their investment options in the light of strong stockmarkets and the low interest rate environment need to be cautious, said Lars Brandau, managing director of the DDV.
“Should they enter the Dax or rather wait for a correction – and which products are appropriate for which market phases? These are questions which investors are asking themselves all the time and for which they are looking for answers,” he said.
According to Brandau there cannot be one particular product for all scenarios, but there is an appropriate product for any given situation. “It is clear that investors can only get a good return, if they take risks,” he said.
The risk appetite of investors in certificates shows big differences depending on the risk profile, as the latest investors’ poll conducted by the DDV revealed.
DDV’s monthly poll showed that risk attitudes among 2,800 self-directed investors are well spread between the association’s five categories which are risk averse, risk intolerant, risk friendly, risk seeking and speculative.
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