The extreme market scenarios triggered by the Covid-19 crisis are making derivatives even more necessary to overcome uncertainty.
Liquidity, structured products and politics were the three main themes raised by panellists at the Société Générale (SG) 6th Derivatives Solutions conference, on 14 October.
As the French bank moves to de-risk its exposure to equity and credit structured products while seeking to remain a major player in investment solutions, a panel moderated by Delphine Limpalaer (pictured), its head of UK flow sales, concluded that the events of 2020 have led many investors to move more towards vanilla and listed products to the detriment of the most sophisticated over-the-counter (OTC) derivatives, which offer the most attractive returns.
Dispersion is a key theme for 2020
According to SG, the events of 2020 have a different kind of impact on volatility compared to the events of the 2009-2010 crisis as they have made the situation difficult for most investors in terms of liquidity – ‘especially given the reduction in the number of players on the volatility market, the withdrawal of some banks in particular, and a less concentrated activity’.
However, it has also created more opportunities for investors with investment capacity. In terms of market dynamics, the panel concluded that structured products will become more important than ever and that pressure on index volatility will return. At the same time, buying flows from retail investors, which have been observed in recent months, could also resurface.
The panellists also agreed that politics will continue to be a major source of uncertainty and market volatility. In this context, selling correlation between indices, thus taking advantage of the current high level of correlation was deemed a good strategy.
‘For most participants, dispersion is a key theme for 2020, as this strategy has performed well since the beginning of the year and should attract more investment flows,’ said Limpalaer.
According to SG, the bank demonstrated this summer ‘its determination to meet client needs by constantly striving to diversify its offer of autocall structured products, by increasing the proportion of less risky products in its books, by being more selective in terms of risks when it comes to standard products and by offering innovative alternative solutions’.
Amundi, Bank of China WM products partnership gets green light
The JV between Amundi and BOC Wealth Management, a subsidiary of the Bank of China, has received a licence from the China Banking and Insurance Regulatory Commission (CBIRC) to start its operations.
Amundi BOC Wealth Management is the first foreign majority-owned company in China allowed to design and offer wealth management products, including capital-at-risk structured notes. Amundi holds a 55% stake while BOC Wealth Management holds the remaining 45% stake.
The company which is registered in Lingang New Free Trade Zone in Shanghai will primarily focus on the distribution of wealth management products to Chinese retail investors - it will first serve BOC customers and will also make its products available to other local distributors and digital platforms in China. In addition, it will progressively target institutional investors.
Considering the depth of the wealth management market and its growth potential, the company expects a strong course of development, according to Yves Perrier (right), Amundi's CEO.
‘This venture, combining the best of both groups, will enable Amundi to bring first class international investment capabilities and services to Chinese investors, and will leverage Bank of China’s experience and extensive distribution network,’ said Perrier.
Amundi and BOC Wealth Management received the approval to establish the first foreign-investor controlled joint-venture wealth management company on December 2019 as the Chinese regulators lifted restrictions to engage in asset management activities on foreign firms.
Under the new rules, onshore institutions and offshore parent banks will be able to support and service structured products – the new regulations ban the issuance of principal-protected wealth management products so all products launched under the wealth management scheme are capital-at-risk.
Amundi BOC Wealth Management expects to launch its first products at the end of the year.
Bloomberg, MSCI partner to launch EM Asia credit ESG Suite
Bloomberg and MSCI have launched the Bloomberg Barclays MSCI Emerging Market Asia Credit Environmental, Social, Governance (ESG) index suite for investors.
This is the first Bloomberg Barclays MSCI suite consisting of three index variants that track the performance of the emerging market US dollar-denominated credit debt in the Asia-ex. Japan region, while incorporating measures for ESG risk and exposures.
The ESG series has three flagship ESG index variants to meet different ESG investment approaches; Socially Responsible, Sustainability, and ESG-Weighted. These variants are based on the Bloomberg Barclays Emerging Market Asia USD Credit Index, and additional ESG eligibility criteria and/or weighting schemes are applied to arrive at this new ESG benchmark index family.
Although the Bloomberg Barclays indices are mainly used by fixed income investors seeking objective, rules-based and representative benchmarks to measure asset class risk and returns, they are also used in the structured products market – the Bloomberg Barclays US Aggregate Bond Index is featured across 16 indexed annuities in the US market with an estimated US$16 billion in assets.
Structured annuities sales soar as more carriers enter market
Total annuity sales were US$54.8 billion in the third quarter, up 13% from the second quarter 2020 but eight percent lower than prior year results, according to preliminary results from the Secure Retirement Institute (SRI) US Individual Annuity Sales Survey.
Registered index-linked annuity (Rila) sales jumped 33% to US$6.4 billion marking the 23rd consecutive quarter over quarter growth for Rila sales. Year-to-date, Rila sales were US$15.8 billion, up 26% compared to the same period of 2019.
Rilas continue to expand and have become one of the fastest growing areas in the US structured products market – they offer more upside potential via guaranteed upside performance caps and downside absorption rates, with such guarantees measured over periods as short as one year or as long as 10 years.
‘In this economic environment, Rila products are very attractive to investors seeking downside protection with greater growth potential,’ said Todd Giesing, senior annuity research director, SRI. ‘In addition, we are seeing more carriers enter the RILA market, also spurring Rila growth.’
Rilas have similarities with fixed indexed annuities (FIA) as the growth is calculated on the return of an index, but they operate in different ways on the downside protection offered.
FIA sales continued to falter in the third quarter and fell by 29% to US$13.2 billion - year-to-date, FIA sales stand at US$41.4 billion, representing a 27% fall compared to the same period of 2019.
Variable annuity (VA) sales also dropped by 10% in the third quarter to US$23.9 billion. VA sales were US$70.7 billion in the first nine months of 2020, down 6% from the first three quarters of 2019.
Liechtenstein structured products provider expands AMC range in Germany
IMaps ETI AG, a structured products issuer from the Principality of Liechtenstein with a focus on actively managed certificates (AMCs) as a white label solution for asset managers, has expanded its offering on the Stuttgart Stock Exchange with five more investment products.
The Haack Index Trading ETI (ISIN: CH0505798642) maps a trading strategy in the Dax future of the Haack Daily stock exchange; the Blackfort Daily Quant Accelerator ETI (ISIN: CH050579867), which uses a systematic contract for difference (CFD) trading strategy based on short-term signals provided by asset manager Blackfort Capital; the Azzilon Smart Beta 100 ETI (ISIN: CH0505798667) which is based on the Azillon Smart Beta 100 Index as a benchmark - a smart beta index developed by Azzilon Systems with Solactive as the calculating agent; and the Alpha Paladin ETI (ISIN: CH0505798618), which tracks a global macro strategy that is not tied to any benchmark and aims to achieve an absolute return by exploiting CFD positions.
The new range is completed by the PP Multi Asset Opportunities ETI (ISIN: CH0505798626), which is based on a multi-asset strategy that works on three different time levels with the aim of achieving positive, double-digit total return income per year. This AMC seeks to track down and take advantage of short and medium-term market anomalies and mispricing.