Investec Structured Products is working on the expansion of its range of passive funds in the UK retail market with European, American and mid-cap versions of its Investec Qtrac UK Controlled Volatility Fund in the pipeline.
The bank said it is in the final stages before launching a new passive fund that will track the Euro 70 index, a proprietary index recently created by Investec which includes a UK and an ex-UK version. The Euro 70 is comprised of the 70 least volatile stocks from 300 of the largest companies in 15 developed European countries, equally weighted and rebalanced monthly.
“The performance of both versions of the Euro 70 index has been very strong,” said Gary Dale (pictured), head of intermediary sales at Investec Structured Products. “We have already been approached with requests for an American and mid-cap version, and we’re now developing a number of controlled vol strategies. We have tested it on the S&P 500 and it works. Our vol control overlay removes weighted bias on stocks (equally weighted) and excludes the possibility of cash lock as we use a vol control overlay, not a cap.”
The new additions to Investec’s fund business are part of a five-year strategy in the UK launched by the South African bank in 2014, said Dale, who added that the development of this business line will complement its structured products offering “and is a great opportunity to show what a derivatives business can offer”.
“We will continue expanding our structured products business because it is a successful business and it has a lot of room to grow,” he said. “[With our passive range] we can replicate strategies by buying stocks or we can do it via swaps but the result for the end investors is a product that will perform.”
Investec Qtrac reported a 15.99% growth on the first anniversary of the UK Controlled Volatility Fund which outperformed the FTSE 100 Total Return Index by 5.04% over the period, with significantly lower volatility.
“There has been much academic research to support investing in low vol strategies over the years and it is good to see both the growth and yield figures standing out with our fund,” said Dale. “Our exposure on many of the UK’s leading wraps and platforms makes the fund accessible to the wider advisory and discretionary markets so we are optimistic about the fund’s potential.”
The fund tracks the performance of the EVEN 30 Index which was developed and marketed in 2010 and eventually triggered the launch of the Investec Qtrac range. The EVEN 30 index has been featured in 47 structured products with an estimated sales volume of over £269m, including 42 structured deposits, and five structured notes, all of which are still live.
“Qtrac is the result of Investec Structured Products’ inroads into the proprietary index segment in 2010 with our EVEN 30 index which was launched because at the time market volatility was enormous and participation on structured deposits looked poor because calls were expensive,” said Dale. “EVEN 30 was designed, back-tested to 1998 and ran as a strategy shortly after. We also launched a number of structured products on the back of it which sold very well. The problem we encountered was that not everybody wants to invest in a structured deposit, and as the index bedded in the performance of the index gave us an indication that a tracker fund could add value to a wider pool of investors.”
The EVEN 30 index, said Dale, has carried since its launch around two thirds of the volatility of the FTSE 100 index and the dividend stream is higher (nearly 120bps pa). “The index continues to outperform the FTSE 100, and it offers a very interesting proposition as a tracker fund,” said Dale. “The performance over the 15-month period since inception has been very good and has called the attention of some of the big guns in the discretionary market who are approaching us showing interest in offering it as part of their equity mandate.”
To run the UK Controlled Volatility Fund, said Dale, costs Investec 18bps pa and it is offered at 50bps for retail investors but it is offered at 15 bps for institutional investors.
“We haven’t seeded the fund because it is a very capital-intense exercise that did not make sense for us as we want to grow it organically,” he said. “This will take longer and assets under management are growing slowly, but the feedback we’re getting from market participants is really encouraging.”
“Investec Qtrac was launched in 2012 as the second product of the bank’s passive strategies Ucits fund platform which leverages Investec’s equity derivatives desk financial structuring and equity trading capabilities and offers low-cost systematic passive strategies (wrapped as Ucits IV OEIC) across UK, European and global equity,” said Dale, who added that the range comprises two passively managed sub-funds with different investment strategies: the UK Controlled Volatility and the Income Booster funds.
“After developing our EVEN 30 index we wanted to differentiate our tracker range to avoid confusion with our structured products offering. The Qtrac brand came about as a sub-brand to carry our passive systematic tracker fund range,” he said. “Investec Qtrac will continue to develop new sub-funds aiming to provide a wider range of strategies and investment links going forward.”
Investec reached an agreement with UK investment platform Cofunds in January this year to include the bank’s Qtrac range in its offering for independent financial advisers (IFAs) and retail investors. The Qtrac range is also available via UK wrap platforms Transact and Novia as well as most SIPP and offshore bond provider platforms.
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