The extreme Covid-19 related volatility on the financial markets at the end of Q1 this year has had myriad of consequences on the global structured product market.

The Netherlands, for instance, saw record numbers of turbos issued during the weeks leading to the mid-March market crash and immediately after. Primary market products, however, were scarce, with only 44 products – from BNP Paribas, ING Bank, Leonteq, and Société Générale, respectively – issued during February-April 2020.

One local market participant noted that they had noticed more demand for sector-related products though the vast majority of the trades still remain on the normal large indices such as Eurostoxx 50 and S&P 500. Popular sectors include healthcare, technology and consumer staples.

In France, however, the market was not impacted negatively by the sanitary crisis triggered by the Covid-19 pandemic as suggested by a 73% increase in issuance during the February- April 2020 period compared to the same period last year. The number of new products launched in the French retail market increased two-fold in the midst of the mid-March market crash. The boom was largely due to the spike in volatility that provided new investment opportunities resulting from the pricing dislocation.

Despite being close to the epicentre of the Covid-19 outbreak, Japan’s structured products market has remained somehow stable. SRP data shows an increase in both issuance and sales during the period between 1 February and 30 April 2020, against the same period in 2019. 

Looking at the three-month period in the run up and immediately after the market crash of mid-March sales stood at US$3.95bn across 221 striking products, compared to same period in 2019 - overall sales were up by 27% with 32 more products striking.

A US lawyer has told SRP that since the volatility spikes seen in March, the markets have calmed down. The VIX has declined substantially, not down to pre-crisis levels, but if ones compares the VIX in this crisis versus the financial crisis in 2008, the VIX during this period went higher in the pandemic but came down rapidly. Chris Schell, partner at law firm Davis, Polk & Wardwell said in this market, there seems to be a lack of panic in the investor base. “But I have not yet witnessed such a thing, and people are still buying the securities,” he said.

In further evidence that the Covid 19 outbreak will have long and drawn out consequences, a new structured fund will focus on managing risk as opposed to the usual autocall strategies seen in other fund-based structures. Investec Structured Products has partnered with UK asset manager Protean Capital to launch a new structured product fund targeted at UK retail investors. The VT Protean Capital ELDeR Fund provides investors with the benefits of the defined returns of structured products but in a unitised, open-ended Ucits format. The fund provides consistent income in a wide range of market conditions, with the potential for growth over the long term.

Life insurance and retirement firm Lincoln Financial Group has added enhancements to its flagship indexed variable annuity product to provide investors with more ways to grow their wealth with a level of protection during market downturns.

The Lincoln Level Advantage was launched in May 2018 as a tool to help clients tailor a combination of indexed account options, terms and levels of protection to help meet their specific investment style, risk tolerance and retirement planning goals.

Recent alterations to the annuity product involve a performance trigger option available with a one-year term and 10% level of protection that tracks the S&P500. This option is directed towards investors who are eager to know what the rate of investment will earn in an up or flat market, regardless of index growth rate. This would provide more predictability for their investment.

Picture: Michael Skok - Unsplash.