Discount certificates are performing better than their underlying assets and 63.1% (68.2%) of the 86,149 (69,025) examined discount certificates which were issued after November 1999 with a maturity date in 2013 are set to have performed the underlying during the respective term, according to the latest survey by the dbX-markets experts of Deutsche Bank.
According to the bank’s study, 74.9% (compared to 70.8% in 2012) of discount certificates had a positive performance compared to 55.2% (49.2% in 2012) of the underlying shares and indices. In addition, 20.6% (22.4% in 2012) of discount certificates had a positive return despite the underlying delivering a negative performance. The survey also found that among the products sampled 52.6% (47.9%) returned the maximum yield.
Indices remain the most popular underlying, with the DAX the most used of these, followed by pan-European indices and US indices in third place. The share of indices from the US, Hong Kong, Russia and Japan have increased between 31% and 44% while the number of products linked to German and European indices also grew by 37% and 26%, respectively. German stocks were the most used shares as products’ underlyings, followed by French and Austrian shares. In this category, 62% of the discount certificates linked to shares performed better than their respective underlying shares.
Market figures
In terms of turnover, discount certificates have the second largest turnover (€955m, equal to 20% of the total turnover in January 2014) and were the most actively traded products after knock out turbo certificates on the German exchanges. In 2013, the German market saw 180,853 products issued, with Deutsche Bank managing the highest turnover at €9bn, followed by Commerzbank with over €8bn, UBS with €8bn, DZ Bank with €5.5bn and BNP Paribas with around €3.6bn.
Although discount certificates are one of the most popular certificates traded on the exchanges and have increased their issuance level from 176.216 in 2012 to 180,853 in 2013 (source: DDV), the overall certificates market is shrinking. According to the survey, the outstanding volume of discount certificates nearly halved between December 2007 (€12.5bn) and December 2008 (€6.69bn), with issuance levels continuing to drop to reach the current level (€3.9bn), as of this January.
The market share breakdown, as reported by the German derivatives association the DDV, was such that Deutsche Bank had a market share in discount certificates of 24.9%, followed by DZ Bank 19.4%, Commerzbank 19%, HSBC Trinkhaus 10.8% and BNP Paribas a market share of 8.9%.
Low volatility
The reason for the market’s low volumes is the current low volatility within the market and the positive performance of the equity market, which is pushing investors to invest directly in the underlying assets themselves instead, because the participation rate in discount certificates is capped.
The first discount certificate was issued in 1995 by Bankhaus Trinkaus & Burkhardt (HSBC Trinkhaus), on the DAX, and investors received a return of 113.7% of initial capital after 14 months of investment. Currently a discount certificate linked to the DAX with the same investment term pays a yield of 12% pa.
Click the link to read the Deutsche Bank survey.