In part two of our three-part roundup, we review how funds from Switzerland, the UK and Ireland performed in the first half of the year.
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 closed June at CHF115.25 (US$130.9), representing an increase of 1.41% since the beginning of the year.
Incorporating Citic CLSA into our roster of issuers provides us with competitive access to Asian indices, particularly the HSI - Vincent Bonnard, Finanzlab
The second quarter was marked by a high level of activity, with nearly 30% of the portfolio being renewed. The strong market performance led to product redemptions from BBVA, Marex, and Julius Baer.
“Concurrently, the interest from investors, which has been noticeable since the beginning of the year, not only persisted but grew stronger,” said Vincent Bonnard (pictured), founding partner, Finanzlab, adding that this heightened interest translated into a more than 20% increase in assets under management (AUM) in Q2 alone.
The fund capitalised on these movements by introducing three new products to the portfolio, including an autocallable barrier reverse convertible (BRC) on a basket comprising the FTSE 100, Hang Seng Index (HSI), Nikkei 225, and S&P/ASX 200 – the fund’s first product with Citic CLSA.
According to Bonnard, the fund places significant emphasis on the diversification of underlying indices within its products – a strategy which not only mitigates market risk but also enhances the stability of the portfolio by reducing the likelihood that all products are subject to redemptions at the same time.
“Incorporating Citic CLSA into our roster of issuers provides us with competitive access to Asian indices, particularly the HSI,” he said.
“This is of great importance because we have observed a trend of fewer issuers offering the HSI, likely due to high licensing costs […] by having Citic CLSA, we ensure that we can source the best prices from a range of issuers while maintaining the necessary diversification within our products.
“This strategy of seeking optimal pricing and diversification is central to the sustained success of our fund,” Bonnard said.
By the end of June, the fund was invested at 88.20% in 11 products from eight different issuers with the remaining 11.20% linked to cash.
The index closest to the barrier is the CAC 40, which would have to fall by a further 45.28% for the structure in which it apears – another autocallable BRC, this time from Vontobel and also including the Nasdaq 100, OMX Stockholm, and DAX – to breach its barrier. The fund is invested to 7.42% of the assets in this product which has a remaining maturity of 20 months.
The average coupon rate of the products within the fund has risen to 5.72%, showing a slight increase from the 5.63% observed at the end of the first quarter.
“Despite this increase, we have maintained a focus on highly defensive products, with capital barriers set at 50% of the strike price […] this strategic approach ensures that our portfolio remains resilient even in volatile market conditions,” Bonnard concluded.
Finanzlab Multi Index Fund has CHF29.6m (US$33.4m) in 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.
Schroder Special Situations Fund (SSF) Structured Income
This Luxembourg Ucits fund aims to provide income and capital growth over rolling five-year periods by investing indirectly in a portfolio of autocallables linked to global equity market indices.
Since its launch in June 2023, the fund has delivered an 8.80% pa total return (I share class), with a volatility of 5.8%. The cumulative performance for 2024 YTD is 3.24%.
We maintain a well-diversified portfolio across nine active markets, from the US and Europe to Asia, ensuring we can aim to take advantage of opportunities and manage risk effectively - Csaba Koppany, Schroders
The current make-up of the fund should yield around 16.4% p.a. if markets remain unchanged. Even if equity markets are down 20% and stay there over the next four- to five-years, the fund should still yield around 6.4% pa.
In June, two investments, linked to the Nikkei 225 and FTSE 100 were redeemed, bringing the fund’s realised yield to 8.2% p.a. for the first half of this year. As a replacement, the fund acquired two new investments with exposure to Nikkei 225 and FTSE 100/ Eurostoxx 50, respectively.
“We aim to recreate the economics of structured notes without purchasing them directly, potentially leading to competitive pricing, liquidity, customisation, diversification, and the possibility of reduced counterparty risk,” said Csaba Koppany (right), head of risk managed investments (RMI) solutions management at Schroders.
Another key differentiator from existing funds in the market is that the fund provides genuine diversification, according to Koppany.
“We maintain a well-diversified portfolio across nine active markets, from the US and Europe to Asia, ensuring we can aim to take advantage of opportunities and manage risk effectively,” he said.
As of 28 June 2024, the fund has exposure to 20 autocalls with an average cover to capital preservation of 44% and an average cover to capital growth of 21%. The average autocall maturity is 4.3-years while the ration for European versus American barriers is 95% against five percent.
Schroder SSF Structured Income has US$10.5m in AuM as of 28 June 2024. The fund was launched on 1 June 2023.
Ballybunion Insignia Defined Returns Fund
This fund is regulated by the Central Bank of Ireland and primarily invests in euro-denominated autocalls.
In June, the fund finished down 3.2%. One note matured during the month, which was replaced by a defensive autocall structure containing three oil majors that carries a coupon of 13% pa.
The fund has exposure to 16 counterparties, including, among others, Crédit Agricole (9.4%), Marex, Itau (each 7.5%), CIBC, EFG (each 6.5%), and J.P. Morgan (6.4%) with 8.7% linked to money market instruments. Eighty-six percent of the fund’s assets is invested in step-down autocalls; eight percent in a 100% capital protected note; and six percent in a twin-win note.
Ballybunion Insignia Defined Returns Fund has €27.1m (US$29.3m) in AuM as of 30 June 2024. The fund was launched on 10 February 2020. The minimum subscription is €100,000 or equivalent (Class A shares). Key investor information risk and reward profile: four out of seven.
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 4.5 to 5% and annual capital growth of circa 2-4% over the longer term. In June, the fund was invested in 49 structured products, including a Barclays FTSE Income Note 06/28 (3.86% of the fund), a CACIB FTSE Income Note 05/28 (3.31%), and a CIBC Dual Index Income Note 12/25 (2.79%).
VT Protean Capital Elder Fund has £85.9m (US$110.3m) in AuM as of 28 June 2024. The fund was launched on 30 August 2017 and the minimum subscription is £2m for institutional investors and £100 for retail investors. Key investor information risk and reward profile: four out of seven.
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 0.12%, ahead of the FTSE 100 Total Return Index whose performance, at -1.05%, was negative.
The indicated gross redemption yield at the end of June reduced to 8.25%. The June observation point resulted in a reset of that contract, with a 6.15% coupon replacing the previous rate of 7.30%.
The average time to maturity is 0.81-years. At current market levels, all the autocallable investments are likely to call within zero and three-years.
VT SG UK Defined Return Assets Fund has £16.7m (US$21.4m) in AuM as of 28 June 2024. The fund was launched on 31 January 2018 and the minimum subscription is £5,000. Key investor information risk and reward profile: five out of seven.
Do you have a confidential story, tip or comment you’d like to share? Write to info@structuredretailproducts.com