SRP reviewed how the various funds of structured products performed in June and Q2 2023.
In the second of a two-part roundup, we look at funds from Canada, the UK and Switzerland.
The objective of this Swiss open-ended fund is to provide an efficient investment in a diversified portfolio of barrier reverse convertible (BRC) products linked exclusively to equity indices of the major developed countries.
The fund delivered a positive performance of 1.53% for June, ending the month with a net asset value of CHF110.41. Its performance for the first half of 2023 is 8.58%.
The fund is being covered by more and more specialist media, and issuers are following us with interest, offering us very competitive prices, which further contributes to the good performance - Vincent Bonnard, Finanzlab
Since its launch in October 2021, the funds defensive strategy has worked well, with an annualised volatility of 6.1% and a maximum drawdown of 5.11%.
“We are extremely pleased with the results of the fund so far,” said Vincent Bonnard (pictured), founding partner, Finanzlab, who has witnessed a growing interest in the fund from the structured products industry.
“The fund is being covered by more and more specialist media, and issuers are following us with interest, offering us very competitive prices, which further contributes to the good performance,” he said.
The fund is for 80.89% invested in eight barrier reverse convertibles with an average coupon of 6.85% pa. The remaining 19.11% is linked to cash.
In June, it took advantage of several early redemptions to enhance portfolio diversification, by expanding the range of indices and staggering maturity dates. Consequently, the Hang Seng, ASX 200, Kospi, OMX, and AEX are now incorporated into the fund.
The nearest barrier is at a distance of 39.55% and the product in question, an Autocallable Multi-Barrier Reverse Convertible on the Eurostoxx 50, S&P 500, and Swiss Market Index has a remaining maturity of 21 months. The fund is invested to 9.20% of the assets in this product.
Finanzlab Multi Index Fund has CHF14.2m (€14.8m) assets under management (AuM). The fund was launched on 20 October 2021. There is no minimum subscription. Key investor information risk and reward profile: three out of seven. The net asset value (NAV) as of 30 June 2023: CHF110.41.
This UK open-ended investment company (OEIC) uses structured products to deliver reliable and consistent returns for portfolio managers allocating to alternatives.
The Refined Growth Fund increased by 1.47% in June with most of its structured notes witnessing positive returns as world equity markets moved higher. Its performance for H1 2023, at 7.16%, is also positive.
We saw more products maturing in Q2, comfortably outperforming underlying markets, and our US and Japanese exposure in particular continues to drive growth - Clive Moore, Idad
The fund has been running for almost two years now, and it has been 12 months since it implemented a strategy refinement, according to Clive Moore, portfolio manager and managing director at Idad.
Recent inflows have been largely deployed and with the increase in funding rates, the fund has been able to introduce several new autocall notes with coupons in excess of nine percent.
“We saw more products maturing in Q2, comfortably outperforming underlying markets, and our US and Japanese exposure in particular continues to drive growth, even when the FTSE 100 has been disappointing,” Moore said.
As of 30 June 2023, the fund was invested for 82.4% in core holdings and 16.2% in tactical holdings – both comprising broadly of structured products from a range of issuing banks. The remaining 1.35% were cash holdings. Its average cover to capital loss is 43.09% with the average cover to capital gain -3.25%.
The funds top 10 holdings include, among other, a Natixis Triple Index Memory Income Autocall (6.38%), Bank of America Dual Index Reducing Autocall (6.18%), and BIL Dual Index Memory Income (4.05%).
Idad Refined Growth Fund has £4m (€4.6m) AuM. The fund was launched on 23 August 2021. The minimum subscription is £50,000. There is a management charge of 0.60% pa. Key investor information risk and reward profile: five out of seven. NAV as of 30 June 2023: 97.07p (Class A) and 95.62p (Class R).
Lowes UK Defined Strategy Fund
This Irish domiciled Ucits fund aims to provide capital growth over the medium to long term in rising, directionless or modestly falling UK equities markets by investing in structured products.
The fund rose by 1.11% in June while its performance comparator of cash as measured by the Bank of England’s Sterling Overnight Index Average (Sonia) +5% rose by 0.77%. Its year-to-date performance is also positive at 2.68%.
Four strategies matured within the fund, including three on their first anniversary, delivering a return of 8.70%, 9.80% and 9.48%, respectively. The fourth strategy matured on its fourth observation with a return of 35.80%. This was the first gilt collateralised strategy added to the fund back in 2019.
Two new strategies were added in June. The first was a step-down autocall offering a potential coupon of 9.45% for each year held, with Citigroup Global Markets as the counterparty. The second was also an autocall, with a step-down feature coming into play from year three onwards, offering a potential return of 8.6% pa.
As of end-June, the funds counterparty exposure was as follows: UK government (79.17%), Citigroup (9.43%), Morgan Stanley (7.66%), Crédit Agricole (3.02%), and cash (0.72%).
Lowes UK Defined Strategy Fund has £25.9m (€30.2m) AuM. The fund was launched on 11 December 2018. The minimum subscription is £1m for institutional investors and £100 for retail investors. There is a management charge of 0.4% pa (Class B) and 0.5% (Class C), respectively. Key investor information risk and reward profile: five out of seven. NAV as of 30 June 2023: £1.1973 (Class C).
Fortem Capital Progressive Growth Fund
This Irish Ucits V Icav fund aims to provide positive returns of 6-7% along with reduced equity beta over the medium to long term. To provide capital growth it uses a portfolio of structured products.
The fund posted a positive return of 2.5% in June. It returned 2.30% in the second quarter while its return for the first six months was 7.36%.
Two investments called during the month. Both did so at the end of the second year of their potential six-year life, paying seven percent pa and 6.3% pa, respectively. They were replaced with new investments with a potential return of 11.1% pa and 10.1% pa with lower final barriers.
The average cover to capital preservation was 35.8% with the average cover to capital growth set at 33.9%.
Fortem Capital Progressive Growth Fund has £333.8m (€389.4m) AuM. The fund was launched on 20 September 2017. The minimum subscription is £5m. There is an annual management charge of 50bps. Key investor information risk and reward profile: four out of seven. NAV as of 30 June 2023: £1.2114 (Share class A GBP).
This fund developed by Investec Wealth & Investment and Protean Capital aims to generate income and capital growth through investments in structured products linked to major global equity markets.
Under current market conditions, the manager anticipates annual income of circa 4.25% to 4.75% and annual capital growth of circa 2-4% over the longer term. In June, the fund held 60 structured products, including a UBS Dual Index Income Note 12/23 (3.78% of the fund), a CIBC Dual Index Income Note 02/24 (2.80%), and a Lloyds Bank Covered Bond 11/27 (2.76%).
VT Protean Capital Elder Fund has £91m (€106m) AuM. The fund was launched on 30 August 2017. The minimum subscription is £2m for institutional investors and £100 for retail investors. There is an annual management charge of 50bps. Key investor information risk and reward profile: four out of seven. NAV as of 30 June 2023: 119.2232p (Class A – Accumulation).
VT SG UK Defined Return Assets Fund
Another fund from Valu-Trac (VT), the VT SG UK Defined Return Assets Fund is sponsored by Société Générale and will seek to achieve its objective – generating capital growth over the long term – primarily via exposure (indirectly by way of a swap) to a portfolio of defined return investments.
The portfolio is composed of 12 rolling up to six-year autocalls (each of which will have a potential maturity date on a different calendar month each year) which are designed to provide a defined return if the FTSE 100 is at, or above, a predefined level on a specified date.
During June, the fund returned +0.49%, lagging the recovery in the FTSE 100 Total Return Index on a relative basis which rose 1.40%. The fund’s performance for the year, at 1.48%, was also positive.
The indicated gross redemption yield at the end of June increased to 8.40%. During the month, the June leg triggered with a new coupon of 7.30% a significant enhancement to the outgoing June coupon of six percent. Post the month end the July leg has also triggered with the replacement 7.80% coupon an increase to the previously held 6.67% coupon.
The average time to maturity currently is 1.56-years. At current market levels, all the autocallable investments are likely to call within zero to four years.
VT SG UK Defined Return Assets Fund has £22.5m (€26.2m) AuM. The fund was launched on 31 January 2018. The minimum subscription is £5,000. There is a management charge of £35,578 pa (chargeable to the fund) +0.375%. Key investor information risk and reward profile: five out of seven. NAV as of 30 June 2023: 122.3604p (Class A).
Schroder Income Maximiser Fund
The fund’s objective is to provide income and capital growth by investing in equity and equity-related securities of UK companies.
It targets an income of seven percent per year, but this could change depending on market conditions. The fund benchmark’s itself against the FTSE All Share Total Return Index and IA OE UK Equity Income Index. Its cumulative performance for June was -0.6% while year to date it has returned 0.6%. Currently the fund has 46 holdings.
Schroder Income Maximiser Fund has £689.3m (€803.1m) AuM. The fund was launched on 4 November 2005. The minimum initial subscription is £1,000 or monthly instalments of £50. There is an ongoing charge of 1.66%. Key investor information risk and reward profile: six out of seven. NAV as of 30 June 2023: £1.2460.
ABN Amro Private Banking/Barclays Autocall Investment Fund
This Ucits fund is regulated by the Central Bank of Ireland and available for sale in Belgium, France, Germany, Ireland and the Netherlands.
Its portfolio of autocall products is managed by Barclays Investment Managers while ABN Amro provides the target parameters and any new autocall investments.
ABN Amro Private Banking/Barclays Autocall Investment Fund has £3.7m AuM (€4.3m). The fund was launched on 29 March 2021. Key investor information risk and reward profile: four out of seven. NAV as of 31 July 2023: €102.68.
The Canadian fund is a defensive equity income strategy that seeks similar returns to many structured notes investments while offering a diversified downside buffer.
Its cash secured put selling strategy generates returns by selling laddered, out-the-money one-year put options on diversified global equity indices. In addition to collecting premiums on selling equity index puts, the fund gets the added benefit of generating a yield on money market securities held as collateral (secured), against the puts it has sold up to the total value of the portfolio.
Ninepoint Target Income Fund has C$33.1m (€22.7m) AuM. The fund was launched on 29 July 2022. The minimum initial investment is C$500 with minimum subsequent investments of C$25. NAV as of 1 August 2023 is C$10.03 (€6.89).