By most accounts, Cantor Fitzgerald has enjoyed a strong year in 2017, and its clients are significantly better off as a result, as the company generated some of the strongest average annualised returns in Europe for products that matured in the year to September 30, according to SRP data.
As a reflection of the company's performance, Cantor has won SRP's 'Best Distributor, Ireland' award, based on quantitative factors, including sales volumes and sales-weighted performance, which will be presented at SRP's 15th Structured Products & Derivatives Conference on February 9 in London.
SRP spoke with Eric Culliton (pictured), head of business development at Cantor Fitzgerald, on the company's performance and distinguishing factor, shape of the market, and outlook for 2018.
What was the distinguishing factor for Cantor over the past year?
Eric Culliton: There are probably several, but perhaps the most important is that we have a very robust underlying asset selection process and this shows in the strong returns we have generated for our structured product clients. We put a lot of thought, quantitative screening and fundamental research into individual stock and underlying index or fund selections. We also tend to favour more conservative and defensive structures and features, such as stepdown kickout levels and additional protection features at maturity, while using higher quality 'A' rated issuers where possible. Capital preservation is a paramount concern for us.
According to SRP data, Cantor Fitzgerald has used about two dozen different underlyings in the year to September 30, 2017, with all products featuring either 90% hard capital protection or autocalls with soft (barrier) protection.
Which was the best-performing product from Cantor in the year to September 30, 2017, and which of the live structures has seen strongest growth? Did these products generate significant interest at time of issuance?
Eric Culliton: We had a large number of successful maturities in 2017, generating strong returns for our clients, but to name a few: the Capital Secure Dividend Aristocrats Bond matured producing 53% over three years and 11 months; Dividend Aristocrats II Bond also produced a 55.27% return, over the same time period; and our Euro Blue Chip Kick Out Note returned 20% over just one-year.
The Euro Blue Chip Kickout Note, producing one of the highest annualised returns for Cantor, autocalled on the first annual observation date. The product also offered a 10 percentage point increase in the knockout coupon for each successive semi-annual observation, promising the 20% annualised return for any successful knockout. Meanwhile, capital was protected at maturity behind a deep 50% barrier.
Cantor's over-11% sales-weighted average annualised return for products maturing in the year to September 30 is among the highest in Europe. The Irish structured products investor, in general, has enjoyed a very lucrative 2017, with average returns of 7.60%, well above the 3.75% average for the continent.
Which has been the bestselling product from Cantor? Why has it generated so much interest?
Eric Culliton: We have done a lot of floored floaters, which have been quite innovative and taken in large volumes, but our autocallables are now receiving very strong interest due to their quality stock selection, defensive features and our consistent record of successes with products kicking out in the short term.
The Knockout has been the single most popular payoff in Ireland last year, present in over a quarter of volume sold, according to SRP data.
How would you rate Ireland's structured products market? Any recent or upcoming highlights?
Eric Culliton: After several years of retrenchment, the Irish structured products market is now expanding again, led by quality distributers like Cantor Fitzgerald. The Irish market is quite innovative and adaptable. In particular, we are always researching new ideas and structures and looking at new high quality counterparties. We again expect to see higher structured product volumes in 2018.
According to SRP data, 'retrenchment' has been the keyword for the market in Ireland in recent years. While this has been slightly less dramatic as compared with the whole of Europe until last year, the decline has caught up with that on the continent in 2017.
How have the preferences of Ireland's structured products investor evolved in recent months and years?
Eric Culliton: Products, distributors and investors have all evolved considerably. The market has substantially moved away from Irish deposit structures wrapped by the local banks and toward European note-based products or European deposit wrappers. Products have also evolved in terms of risk, moving away from 100% hard capital protection towards soft protected autocalls or 90% capital protected products. Investors have shown they are willing to consider new structures and ideas.
According to SRP data, the fully capital guaranteed market has shrunk significantly over the past three years, at the expense of the partially and non-protected, which accounted for nearly half the market at the end of 2017, up from some 12% in 2014.
What has been the effect of Priips and Mifid 2, now that both frameworks are in force?
Eric Culliton: We have seen a significant impact on our documentation, but we have worked with the investment banks and our compliance team to successfully resolve these regulatory challenges. The enhanced disclosures Mifid 2 brings is a good thing for retail investors. We have always been very transparent and ensured full disclosures in our documentation.
Future plans and opportunities/threats?
Eric Culliton: We look forward to continued growth and success across our structured product range. We expect to expand the number of counterparties we deal with, develop innovative new products across a range of markets and continue to generate market leading returns for our clients.
SRP's 15th European Structured Products & Derivatives Conference 2018 will take place on 7-9 February at the etc.venues, County Hall, London.
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