Solactive has won the Best Index Provider award at this year's SRP Europe 2024 awards.
The German index provider was recognised as the Best Index Provider of the European structured products market in 2023 at the SRP Europe 2024 conference.
In full year 2023, Solactive saw up to 82 of its indices deployed across 221 structured products sold across European market worth an estimated US$1.4 billion.
A key part of our offering is based on providing access to niche segments - Timo Pfeiffer
The highest selling Solactive index was the Solactive Transatlantic Biodiversity Screened 150 CW Decrement 50 Index which raised US$445.46m across eight products sold in France (seven) and the UK (one); followed by the Solactive Europe and United States Technology 30/70 AR Index sold in France (27 products/US$129.76m) and the Solactive Societe Generale AR 1.65 Index which was featured in 17 products sold also in France worth US$67.12m.
There were also three products where a Solactive index was used in combination of indices from Stoxx and Euronext.
The highest number of products linked to Solactive indices were marketed in France (130 products/US$1 billion); followed by Finland (33/US$81m) and Germany/Austria (19/US$75.6m).
Société Générale with 62 products worth US$725.99m was the most active user of Solactive indices, with Morgan Stanley (48/US$187m) and BNP Paribas (43/US$149m) closely behind. In Germany, Österreichische Sparkassen was the main issuer of Solactive indices with 20 products worth US$143.40m) and in Finland OP Ryhmä sold eight products valued at US$35.99m).
"Being recognised by the industry is something we pride ourselves on and it reflects our products and services," Timo Pfeiffer (main picture), chief markets officer at Solactive, told SRP. "A key part of our offering is based on innovation and providing access to niche segments."
Fabian Colin (above left), head of sales at Solactive, received the award on 19 March in London.
Pfeiffer notes that all index providers have oil and gas, banks, technology and broad sector indices whereas Solactive's focus "is more on finding new themes and segments in the market where you can shape exposures and generate value to investors".
"Our efforts to create indices that give exposure to the AI big data and biodiversity themes are a good example of our focus on innovation and access to segments and themes," he said. "As an index provider we are very aware of the needs of our clients as well as the goals of end investors which want returns. Investors don't want innovation for the sake of innovation but innovation that delivers value and investment returns."
Can you explain the product development process at Solactive?
Timo Pfeiffer: It is twofold. Very often, it can be right off the bat - you know specifically what a client is looking for so you work on it and help them to bring those ideas to life; but sometimes product ideas come from research or after a white paper is published – finding out what is new and what is driving growth in the market can trigger the creation of new indices.
In 2024, we see demand for specific, very focused exposures as investors seem a bit cautious
We’ve just published our ‘Future Trends 24’ report which is really a view of the world rather than a list of indices. The research looks at technology as well as other themes like biodiversity and ESG, or geopolitical risk which has become a trending topic right now. Geopolitical risk is a very broad topic, and the question is how to translate it into an index and where to find datapoints and definitions to measure geopolitical risk. We have many conversations on the back of research that end up translating into indices.
How is the ETF v structured products split at Solactive?
The common perception is that we do more ETFs than structured products, but it's actually a bias. Every ETF that we are involved is in the public domain - there is an ISIN code, the assets are public, and investors can see if it is an active index or a long play. Our presence and activities in the ETF market is more visible.
However, our indexing activity with structuring desks at investment banks is significantly larger. That includes structured products as well as the institutional business which is more focused on QIS or delta-one baskets that investment banks trade in a more institutional context. The structured products market remains a very solid space to develop new underlyings and grow our business. And I am a structured products guy after all.
What are your 2023 highlights?
Looking back, 2023 was an interesting year for the structured product industry where the game changer came in the form of higher interest rates. However, my understanding is that the product mix has only changed slightly with autocallables retaining their dominant position as the payoff of choice.
Higher interest rates help to improve the optics of capital at risk products and make full protection a real possibility, but we have not seen a complete shift towards fully principal protected notes. We have also seen activity around products that are less index or equity based which have certainly picked up strongly – any sort of plain vanilla, fixed coupon type of products such as variable floating bonds or inflation linked structures on the fixed income side, have clearly benefited from the higher level of interest rates.
It was also the year when some strong emerging themes became mainstream with AI being the dominant theme as well as ESG variations such as biodiversity or renewable energy gaining visibility.
The thematic space was somehow muted in 2023 as the magnificent seven took centre stage. In 2024, we see demand for specific, very focused exposures as investors seem a bit cautious. Structured products can work well with specific focused exposures as investors can use them to gain broader diversification as well as protection.
In H2 23, we continued to see demand for decrement indices primarily used for the autocallable space with France remaining as the biggest market for this kind of index in Europe. We are ready to respond to any demand for new indices as we can leverage our flexibility and tech driven set up as an index platform which allows us to be super fast. Decrement indices have been a driver of activity for us throughout 2023 and they are a good example of our DNA when looking at customisation.
What asset class dynamics/investor sentiment do you observe in 2024?
Investor demand remains focused on the equity market but with the return of principal protection there is scope to look at multi-asset strategies which would combine well from a diversification and protection perspective - that can be a combination of indices with some allocation mechanism, volatility target and other features that did not make sense with very low interest rates.
For us there is opportunity in areas of the market that are overexposed to benchmarks and need diversification
Now with a 10% volatility target on a cross asset portfolio, investors can get some very sensible exposure and participation via protected notes. There is also a strong proposition around protected fund derivative structures – investors are sitting on gains and would probably be happy to switch exposures into protected structures.
Do you expect a shift back to benchmark type of indices now that interest rates are higher and product providers can offer meaningful upside and protection?
There is no debate around the use of benchmarks v custom underlyings, and we don't view it as a changing trend because the Eurostoxx 50s and the S&P 500s with their respective liquidity will always be the main drivers and then most popular underlyings for structured products and other investments.
For us there is opportunity in areas of the market that are overexposed to benchmarks and need diversification – investors in structured products and ETFs are looking at thematic exposure but there are other areas like the US annuities market where we’re already scoring some nice wins.
Interest rates and demand for multi asset exposure is also resonating well in the US FIA market where there is a need for alternatives to the main indices and investors are used to volatility mechanisms which are now operating at an intraday level to diversify their investments.
What elements of Solactive's offering give the company an edge in the structured products market?
I often like to describe ourselves as the smallest among the big index providers and also the biggest among the small ones. Our goal is to continue growing and bringing innovation to the market which is a core part of our DNA.
We want to continue maintaining a partnership approach – we're not an organisation that cares more about processes than clients. We are now well established as an index provider across markets and products, but we see activity in the index space and new players entering the market. We must ensure that we keep the right level of flexibility as a young player and strengthen the elements of the big ones - the size, the track-record, the scale and the stability.
Do you have a confidential story, tip, or comment you’d like to share? Write to info@structuredretailproducts.com.