SRP Digest: Staying on the sidelines

Defined payouts and low vol underlyings can add value to retirement portfolios but comparability becomes harder when each product has its own customised index.

Structured products have become viable strategies for managing retirement risk and play an increasingly visible role in the retirement income styles framework, according to Professor Wade Pfau, keynote speaker at the SRP Americas 2023 conference.

“Structured products may not meet the true definition of an asset class, but they definitely have a different risk-return profile that functions like a different asset class,” Prof. Pfau said in an interview with SRP.

Investors remained on the sidelines and positioned themselves against a possible market correction - André Buck, SIX Swiss Exchange

Staying with retirement products, Prudential Financial unveiled the Prudential Income Advantage Indexed Structured Settlement (Income Advantage), which provides an opportunity for market-linked gains during a deferral period, with growth linked to the S&P 500, all while guaranteeing a minimum payment amount.

Meanwhile, Ibexis Life & Annuity Insurance launched a five-year structure for its Fixed Indexed Annuity (FIA) Plus series in the independent marketing organisation sales channel, in a response to client’s demand for shorter tenor. The accumulation-focused FIA, offers crediting strategies linked to the BofA U.S. Strength Fast Convergence Index, HSBC AI Global Tactical Index, the S&P 500 and a fixed account. In addition, the product offers embedded optionality with floor options that provide higher accumulation potential.

US advisory firm NewEdge is implementing a new approach to investing in structured notes and creating managed investment strategies using these products. The launch of the NewEdge Structured Note Strategies back in the summer, which is part of the firm’s NewEdge Investment Solutions platform, is testimony to that vision as it is aimed at going beyond what most financial advisors are trying to do in the US market.

“Investment platforms wanting to offer advisory based structured notes have historically come with challenges, especially if those advisory accounts contain 100% structured note exposure as our strategies do,” said NewEdge’s Michaelangelo Dooley.

Also in the US, interest-linked structured products increased their sales volume by 72% quarter-on-quarter (QoQ): from US$2.7 billion in Q2 to US$4.6 billion in Q3 2023. At the same time, the average annual coupons in September reached their highest monthly level in 2023 to date, at 5.9%.

September trading volumes on the SIX Swiss Exchange increased by 11.8% compared to August, reaching CHF79.7 billion (US$86.7 billion) during the month.

Structured products listings remained the strongest area of growth, with over 8,000 new products launched on the exchange in September, bringing the total since the start of the year to 76,101 – up 19% compared to the first nine months of 2022.

Turnover for structured products traded on the exchange, at CHF603m, increased for the third month in a row, despite being 46% down from the year high which was seen in March when trading volumes reached CHF1.1 billion.

“Investors remained on the sidelines and positioned themselves against a possible market correction,” said André Buck, global head sales & relationship management at SIX Swiss Exchange.

In Belgium, the second quarter of 2023 was marked by high sales volumes with an estimated €1.1 billion collected from 20 publicly offered structured products – a 3.2-fold increase by sales volume compared to the prior year quarter (Q2 2022: €250m from 23 products). The average maturity in the quarter was much shorter compared to Q2 2022: 5.65-years versus 7.75-years.

Over in South Africa, FirstRand Bank introduced its first self-hedged structured note. Denominated in rand, the three-year, capital protected structure offers 110% uncapped participation in the MSCI World Index. The minimum ticket is ZAR100,000 (US$5,300) with a unit price of ZAR10,000. First National Bank (FNB) is the primary distributor.

FNB has been focusing on building up protection for clients on top of fixed deposits for the last four years, according to its head of product, wealth and investments Samukelo Sifiso Zwane. “It started from guaranteed life annuity followed by guaranteed growth plans and guaranteed income plans.”

SRP’s market review for South Africa shows that issuance in Q2 increased 1.8-fold quarter-on-quarter.

In crypto news, J.P. Morgan facilitated its first blockchain-based collateral settlement for a live client OTC derivative transaction while UBS Asset Management launched its first live pilot of a tokenised Variable Capital Company (VCC) fund on the Ethereum blockchain.

Furthermore, 21Shares unveiled a new crypto ETP providing directly backed exposure to MKR, the governance token of the decentralised lending platform MakerDAO.