Investors in Belgium are slightly but surely turning their back on products with 90% capital protection while the number of US dollar-denominated products is also decreasing; on the other hand, structures linked to proprietary indices are prospering like never before.
An increasing number of investors in Belgium are putting its faith in structured products protecting 100% of the nominal invested, according to SRP data. This year, 70% of all products are fully capital protected, compared to 54% in the whole of last year and 48% in 2015. The move comes at the expense of products protecting 90% of capital which, in 2015, made up 46% of the market by issuance and almost 60% by sales volume. Since then, both issuance and sales of this type of product have dramatically decreased, with just 75 products worth €872m protecting 90% of capital this year, translating in a share of 28% and 26%, respectively, of the total market in Belgium.
However, many local distributors offer their clients the option to buy either a 90% or a 100% capital protected product, often linked to the same index. One such provider is Crelan, which collaborated with Credit Suisse for two products linked to the iStoxx Global Women Leadership Select 30 index: Callable Women Leadership 100 and Callable Women Leadership 90. Both products are callable, from the second year onwards, and participate 100% in the underlying, although the duration of the 90% product, at five years, is half that of the 100% product.
"At Crelan, 100% capital protection is an aspect that our clients always ask for," said Koen Theys (pictured), product manager (off-balance sheet) at Crelan. "But, besides that, we also offer the 90% note as an option for our customers who want to invest a little bit more dynamically. After an advisory interview, we leave the choice [100% or 90% capital protection] completely to the customer," said Theys. "It is absolutely not the case that we are pushing the 90% emission in our distribution channel. It is an additional product, which gives our clients a choice."
Crelan specifically opted for the Global Women Leadership Select 30, according to Theys. "Within Crelan, we believe in equality and this was a decisive factor that let us choose this particular index, and that this way we can bring gender diversity (or equality) to the attention of our clients," said Theys. "We do not believe that 'all animals are equal, but some animals are more equal than others'."
Structured products denominated in dollars have followed a similar trend to those offering 90% capital protection. Two years ago, in 2015, sales of dollar products, at €1.6bn, made up 29% of the local market. Last year, sales decreased to €1.2bn, or 22%, and this year only 14% of products issued (with combined sales of €440m), are denominated in the US currency.
AG Insurance has in recent months also made a habit of launching two products simultaneously (100% and 90% protected versions), but, unlike Crelan, which focused strictly on euro-denominated products, the insurer has been offering its clients the additional choice of a euro product, with 90% protection, and a dollar product (100% protection). This month, however, AG Insurance decided to launch just one product, the 90% protected AG Target+ 90 Global Infrastructure 2027, which is denominated in euros, although there is certainly not a lack of interest for the dollar, according to Nicolas Nizet, product manager, market development invest at AG Insurance.
"Indeed, for our latest launches, AG Target+ USD Dynamic Deep Value 2027 and AG Target+ 90 Dynamic Deep Value 2027, subscriptions for the US dollar-denominated launch were significantly higher," said Nizet. "This time, we decided not to launch a version in USD, because we did not think there was a really attractive index on the market, due to either bad conditions or indices already used in previous products. But it is quite possible that in the future we privilege the launches in USD, in order to pass on the better conditions, such as full protection, higher yield potential, better portfolio diversification, dollar at a low level, etc," said Nizet.
The insurer's latest offering is linked to the Solactive Global Infrastructure Select 40 Index, one of many proprietary indices that have swamped the market in Belgium this year. One hundred and twenty-nine of the 299 products with strike dates in 2017 are linked to a house index, compared to just 26 products linked to benchmarks, such as the Bel 20, Dax and Eurostoxx 50. Last year, the number of products linked to a proprietary index was 126, while, in 2015, there were only 62 products.
"We decided to choose the Solactive Global Infrastructure Select 40 index because, with this index, it's very clear how shares are selected for inclusion in the index, which is not necessarily the case with other indexes," said Nizet. "Moreover, this sector has a huge potential. It is a relatively young sector, which is fast expanding and driven by the global economic needs and public financial constraints," said Nizet.
There are 299 structured products worth €3.1bn with strike dates in 2017 available to retail investors in Belgium. The products, which are linked to equities (218 products), interest rate (63), fund (16), commodities and inflation (one each), are distributed via 12 different providers, of which KBC, with 57 products, is the most active, followed closely by Belfius and BNP Paribas (with 53 each). Crelan has launched 22 products this year, while AG Insurance has issued nine products via its own distribution channel, 11 products via the BNP Paribas Fortis channel and seven products via Bpost Bank.
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