SRP reviewed how some of the biggest funds of structured products registered in the Netherlands, Switzerland, the UK and Ireland performed in the third quarter of 2024.
Market Stability Fund (formerly Mondriaan Structures Fund)
This Dutch fund invests in a variety of structured products to generate an average long-term return at least equal to the average long-term return of equity markets in general, but with a lower level of risk compared to a diversified equity portfolio.
The fund closed the month of September 0.20% higher relative to August while its performance year to date is 6.0%.
The third quarter was volatile on the stock markets, with significant downward movements, especially in the Nikkei, but also in Western indices such as the S&P 500 and the Eurostoxx 50 - Jeroen Sinnige, MSF
During September, structures were redeemed for a total notional of approximately €11 million. All intended coupons have been paid throughout the month with the revenues, including a part of the available liquidity, reinvested in new structures in both euros and dollars.
“The third quarter was a volatile quarter on the stock markets, with significant downward movements, especially in the Nikkei, but also in Western indices such as the S&P 500 and the Eurostoxx 50,” said Jeroen Sinnige (pictured), managing director, portfolio management & sales, Market Stability Fund (MSF).
Despite this volatility, the fund achieved a positive return in every month of the third quarter of 2024. A total amount of approximately €16m has been invested in September. The average annual coupon increased slightly compared to a month ago and amounts 11.5% on an annual basis.
“This volatility, as seen in August but also in September, has meant that the coupons on the products we invest in are still attractive. The high coupon level that we have been able to work with for some time now clearly manifests itself in the annual performance of the fund,” said Sinnige.
The conditional protection barrier is intact for all structures. The average buffer towards the protection barrier is almost 37% at the end of September, with the lowest buffer set at more than 33%. In addition, all structures are currently paying their coupons.
The Market Stability Fund has €138.9m (US$151.1m) in assets under management (AuM). The fund was launched on 1 January 2018 and the minimum subscription is €100,000. Key investor information risk and reward profile: five out of seven.
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.
After achieving 13 consecutive months of positive returns, the fund reached a new all-time high of CHF116.51 (US$134.92) by the end of September, reflecting a 2.52% increase since the beginning of the year.
August began with a record drop in the Nikkei, which lost nearly 20% in just a few days, alongside significant declines in other markets - Vincent Bonnard, Finanzlab
However, the quarter also brought some challenges, according to Vincent Bonnard (below right), founding partner, Finanzlab.
“August began with a record drop in the Nikkei, which lost nearly 20% in just a few days, alongside significant declines in other markets […] despite these downturns and the accompanying rise in volatility, our fund – exposed to three products linked to the Nikkei – recorded a maximum drawdown of only 2.36% over the period,” said Bonnard, adding that by mid-August, the fund had once again reached a new all-time high, demonstrating the resilience of its strategy.
On the product side, there were no redemptions during the quarter, however, there was a new issuance from a more local issuer, Banque Cantonale Vaudoise (BCV), with the fund acquiring a BRC with a conditional 5.05% pa coupon on the Eurostoxx 50, S&P 500, SMI, and Ibex 35.
“We observed very favourable pricing from BCV at the start of the quarter and took advantage of available cash to include this highly rated issuer in our fund, further enhancing issuer diversification within the portfolio,” said Bonnard.
By the end of September, the fund was invested at 97.45% in 12 products from nine different issuers with the remaining 2.55% linked to cash. The average coupon rate of the products within the fund remained stable at 5.67% pa.
“Q4 2024 will mark the fund's three-year anniversary, an important milestone, particularly for institutional investors who have been monitoring us from the outset,” said Bonnard.
During this period, the fund achieved a +16.51% performance, combined with a maximum drawdown of 5.11%. With assets under management now exceeding CHF30m, Bonnard is expecting continued growth, and potentially an acceleration in the fund’s growth trajectory.
“AuM growth should also be supported by performance, as several products in the portfolio are still trading below par, offering the potential for capital gains in addition to coupon income as these products approach maturity or early redemption.
“With a diversified product range and an average distance to barriers exceeding 46%, the portfolio remains well-positioned,” Bonnard concluded.
Finanzlab Multi Index Fund has CHF30.8m (US$35.7m) in 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
Atlantic House Defined Returns Fund
Launched in 2013 and with assets of more than £2 billion, this Dublin domiciled fund is one of the oldest and most established funds of structured products.
The fund aims to deliver an annualised net return of 7-8% of the medium to long-term in all but the bleakest market conditions. It will do so via an actively managed exposure to a diversified portfolio of structured products linked to global equity indices.
Aimed at advised and discretionary market investors, the fund benchmarks its performance to the Solactive United Kingdom Large Cap Ex Investment Trust Net Total Return Index, the Solactive US Large Cap Index and the Solactive Euro 50 Net Total Return Index.
In September, the fund was flat, compared to -1.5% for the UK large cap market, +2.1% in the US, and +1.0% in the Europe. It’s cumulative performance in 2024 to date is 5.81%.
Of the three annual autocall observations in the month, two matured – both on their first anniversary – while the other rolled into its fourth year. Four new investments were added during the month to replace the two maturities and to service inflows. Around 70% of the fund is less than one year old.
At the end of the month, the downside protection to the worst-performing index to a positive return was nearly 34%, with average capital protection to the worst-performing index being 38%. The sensitivity (delta) to equity market moves continues to be relatively low at around 31%.
Atlantic House Defined Returns Fund has £2.3 billion (US$3 billion) in AuM. The fund was launched on 4 November 2013 and the minimum subscription is £5m or an equivalent amount in another currency. Key investor information risk and reward profile: six out of seven.
Atlantic House Global Defined Returns Fund
The UK investment manager launched another Dublin registered fund in June 2023. It aims to generate an annualised net return of 8-9% pa over the medium to long-term in all but the bleakest market conditions.
It will do so via an actively managed portfolio of structured products linked to global equity indices. To provide the return of capital to investors over time, it invests in US government bonds.
In September, the Solactive GBS Developed Markets Large & Mid Cap Index, the fund’s benchmark, was up 1.80%, and the fund itself was up around a third of this at 0.54%. The cumulative performance of the fund since its launch is 10.75% against 30.94% for the benchmark.
The pattern of one maturity and two new products in a month continued in September, following more inflows. The fund now has a total of 22 autocall investments. The average cover before capital loss is 35.6% with an average cover of 30.40% to achieve a positive return.
The Atlantic House Global Defined Returns Fund has US$58.1m in AuM. The fund was launched on 26 June 2023 and the minimum investment is US$10,000 or the equivalent in EUR, GBP or CHF. Key investor information risk and reward profile: six out of seven.
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 invests in structured products linked to major equity indices with a maximum of two underlying indices per investment.
The fund posted a positive return of 0.20% for September. Its performance since inception is also positive, at 33.48%. The average cover to capital preservation was 38.3% with the average cover to capital growth set at 37.4%.
Fortem Capital Progressive Growth Fund has £410m (US$533.7m) in AuM. The fund was launched on 20 September 2017 and the minimum subscription is £5m. Key investor information risk and reward profile: four out of seven.
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