SRP did the rounds to see how the various funds of structured products performed in July.
After a difficult six months, July showed its sunny side, offering investors some respite with the S&P 500 gaining nine percent while the more volatile Nasdaq rallied almost 13% in the month.
In general, investors appeared more confident, attaching great importance to the sharp fall in interest rates that took place in July. The increasing probability of an imminent recession did not seem to bother them while the tense geopolitical situation also apparently had no negative impact.
In part one of a two-part roundup, SRP looked at funds of structured products from Switzerland, the UK, Ireland and the Netherlands, to see whether they could take advantage of the positive market sentiment.
The objective of this Swiss open-ended fund is to provide an efficient investment in a diversified portfolio of barrier reverse convertible products linked exclusively to equity indices of the major developed countries. The strategy implements a systematic sale of exotic options, thus capturing overvalued risk premiums. It aims for absolute capital growth.
The fund's substantial exposure to the US market has paid off and allowed it to fully benefit from the market's recovery - Vincent Bonnard, Finanzlab
The fund recorded its best monthly performance, at +4.45%. Its net asset value (Nav) at end-July was CHF99.86, the same level as the start of the year.
“July turned out to be the best month on Wall Street since 2020, with the S&P 500 gaining 9.1% and the Nasdaq 100 rallying 12.5%,” said Vincent Bonnard (pictured), founding partner, Finanzlab.
“At the same time, volatility has decreased significantly, and against this backdrop, all products in the fund posted a positive monthly performance,” he said.
Some 93.54% of the fund’s assets are invested in a portfolio of six structured products and, unsurprisingly, products with exposure to the Nasdaq benefited particularly from this rebound. For example, the express certificate on a basket comprising Cac 40, Ibex 35, and Nasdaq 100 that is issued via Banque International à Luxembourg and is listed on the SIX Swiss Exchange gained 5.53% during the month.
Other issuers include Aargauische Kantonalbank (AKB), EFG, Postfinance, Raiffeisen Switzerland and Vontobel. The maximum exposure per issuer is 20%.
“The fund's substantial exposure to the US market has paid off and allowed it to fully benefit from the market's recovery,” said Bonnard, adding that the very attractive monthly coupons, with a weighted average of 7.32% per year, also continue to support the fund's performance.
“As we approach the fund’s first anniversary, we are very pleased with its performance, which has shown strong resilience when markets got off to their worst start in decades and a good ability to rebound afterwards,” said Bonnard.
As of 31 July 2022, Finanzlab Multi Index Fund has CHF8m (€8.3m) assets under management (AuM). The fund was launched on 20 October 2021. There is no minimum subscription.
Causeway Securities Defined Growth Fund
This Dublin registered fund (Ucits V) aims to generate an annualised net return of 7% (USD) over the medium to long term, with reduced sensitivity to equity market falls. It will do so via an actively managed exposure to a portfolio of autocallable structured products linked to major equity indices. The products are backed by G7 government bonds, reducing counterparty bank risk.
The fund registered a positive result of 3.62% for July, although its performance for 2022 to date, at -6.85%, is less rosy. The current portfolio comprises 16 step-down autocalls that are each linked to a worst-of basket of three indices – mainly benchmarks such as FTSE 100, S&P 500, Eurostoxx 50, Russell 2000 and Swiss Market Index. These products pay an average coupon of 9.9% pa and their average distance above the final autocall barrier is +6.3%. Twenty products have already matured, paying an average coupon of 9% pa.
Causeway Securities Defined Growth Fund has $22.8m (€22.2m) AuM. The fund was launched on 4 February 2020. The minimum subscription is $1,000. Key investor information risk and reward profile: six out of seven.
The Dutch open-ended fund’s main objective is to achieve a positive return in the long term, with a much lower risk than is associated with a regular equity investment. It aims to achieve its objectives by investing in bonus and discount certificates on both indices and individual shares that are listed in Germany. Besides that, put options are bought to mitigate the risks of a (sharp) global decline in the financial markets.
Bufferfund was able to take advantage from the favourable conditions on the financial markets and increased by almost 5% (2022 to date: -8.07%).
In June it had suffered from a number of capped bonus certificates (CBCs) whose buffer was breached. However, after the strong price increases in July, which meant the losses on these products turned out to be less severe than initially expected, these certificates were sold and replaced with new CBCs on the same shares, but with bigger buffers.
The fund also sold a certificate on the Eurostoxx 50 index for a profit. This CBC has been partly replaced by slightly larger positions in the aforementioned certificates on individual shares.
The fund has currently positions in bonus certificates (50%), capped bonus certificates (45%), options (2%), and liquidities (3%).
Bufferfund has €20.1m AuM. It was launched on 18 August 2016. The minimum subscription is €100,000. There is a management charge of 0.96% pa. The fund is not regulated.
Another Dutch domiciled fund, Mondriaan Structures aims to achieve an average long-term return that is at least equal to the return on the stock market, but with a lower risk than a diversified equity portfolio. The fund invests in structured products with a conditional principal guarantee.
In July, the value of the fund increased by 4.66% (2022 to date: -1.56%).
The buffers to the redemption and coupon barriers increased during the month. The conditional protection of 40 out of 43 structures is still in place. The average buffer to the redemption barrier of these structures at the end of July was close to 25% with all but four buffers to the coupon barriers positive.
Several coupons were paid out during the month. The fund currently has 11 different counterparties with exposure to a single counterparty limited to 20% at the moment of the transaction. It is invested in structured products (95%) and liquidities (5%).
Mondriaan Structures Fund has €106.3m AuM. The fund was launched on 1 January 2018. The minimum subscription is €100,000. There is a management charge of 0.72% pa. Key investor information risk and reward profile: five out of seven.
Ballybunion Insignia Defined Returns Fund
This fund is regulated by the Central Bank of Ireland. It has a target return of 7-9% per annum over rolling five-year periods. The fund primarily invests in euro denominated notes that are structured as autocalls. It usually holds 10 to 15 notes, with an approximately equal split by notional value and counterparty exposure.
The Defined Returns Fund was another fund that benefited from the positive performance of the financial markets. Its Nav increased by 7.6% during the month (2022 to date: -16.3%).
A defensive autocall note on a basket comprising the shares of LVMH, Nike & Amazon was purchased from new cash into the fund. This position has had a strong start over the month.
The fund is 100% invested in euro-denominated step-down autocalls. It has exposure to 14 issuers, including, among others, Citi (9.3%), Crédit Agricole, Raiffeisen Switzerland and Leonteq (each 9%) and BNP Paribas (8.2%).
Ballybunion Insignia Defined Returns Fund has €19.3m AuM. The fund was launched on 10 February 2020. The minimum subscription is €250,000 or equivalent. There is a management charge of 1% pa. Key investor information risk and reward profile: four out of seven.