A lesser-known product type walks into the structured product space.

The recent rise in interest rates has fundamentally changed the retail structured products market over the last couple of years. The main effect that has been seen in every country is the increase in capital protected products compared to three years ago.

Another noticeable change has been the number of simple fixed income products made possible by higher rates. The rise in interest rates has also generated enough interest in the structured products sector to create a set of products that play with combinations of fixed income, floating rates and equity returns. This product set is known as the flip-flop, and many such examples already exist on the SRP database accessible at SRP.com.

One example (SRP ID 40791859) was issued by BNP Paribas in France in May 2023 and is linked to the Euribor three-month rate. The first year the product pays 2.95% fixed quarterly and the second year a fixed rate of 3.25%. For the remaining years the coupon is linked to Euribor floored at three percent and capped at four percent. At the time the product was launched the risk free Euribor rate was just under three percent. The coupon stream offered has rising yield rates and potentially offers up to four percent. The flip-flop product type can position itself to take account of further interest rate movements during the lifetime of the product.

Still in Europe, capital protected products linked to inflation, interest rates or equity baskets attracted the highest sales volumes in 2023, with Italy and Belgium the standout markets. 

Intesa Sanpaolo’s Luxembourg listed certificate on the Italy Consumer Price Index (CPI) excluding Tobacco is the highest selling European product in 2023 to date, according to SRP data. The one-year, capital protected certificate pays a digital coupon of 4.10% if the Italian inflation is at or above 118.70 on 2 September 2024. Otherwise, no coupon is paid.

Over in the US, J.P. Morgan will again end the year as the most active issuer of SEC-registered notes on the back of a 17.2% market share year-to-date (YTD). The US investment bank has sold 7,438 products worth US$18.3 billion, an increase of 6.4% compared with the volume recorded for the full year 2022.

The bank also marketed two 3(a)(2) structured notes linked to the S&P 500 and Russell 2000 indices, respectively, which are exempt from SEC registration. The combined sales of the two products was US$2.9m. Additionally, SRP data shows three market-linked deposits of certificates on the S&P 500 worth US$8.5m in total issued by J.P. Morgan YTD.

Sales of structured products on the Belgian primary market reached a 12-month low in Q3 2023 with volumes of just €307m (US$332m), according to the latest figures released by the Belgian Structured Investment Products Association (Belsipa).

After the peak in turnover seen in the first and second quarter of the year – which, with sales of €1.8 billion and €1.1 billion, respectively, were among the best quarters for the sector in recent years – volumes decreased by 46% year-on-year (YoY) and were down by 72% compared to the previous quarter.

Thirty-four new products were launched between 1 July and 30 September, the majority of which provided full capital protection. All structured products sold, either through a public offer or through a private placement, complied with the moratorium on the distribution of particular complex products, which was set up by the FSMA in 2011 to allow investors to gain a better insight into the costs, credit risk and market value of structured products.

Meanwhile, the share of Uber Technologies rose to a 31-month high on Monday 4 December after S&P Dow Jones Indices announced the company will be included in the S&P 500 index from Monday 18 December, coinciding with the index’ quarterly rebalance.

With the help of the StructrPro tool, SRP analysed how structured products linked to the Uber share in the US market have fared in recent years. The sample portfolio comprises 288 structured products linked to the Uber share, either on its own or as part of a basket. Of these, 78 are live products and 210 have matured.

Some 61 live products in the sample are currently on track to deliver a gain. As of 1 December, their average return per annum was 2.17% with a structured product payoff of 93.28%, against an underlying level of 88.34% and maturity of 1.8 years.

One of the best live performers, J.P. Morgan’s Uncapped Buffered Return Enhanced Note (48133NJH2) on a worst-of basket also comprising the shares of Netflix and Meta. The three-year structure, which sold US$250,000 at inception, offers 334.85% uncapped participation in the rise of the worst performing share. It is due to mature on 22 September 2025 and its spot level on 1 December 2023 was 205.71%.

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