A total of 603 structured products worth an estimated CHF707m (€650m) were added to SRP’s Swiss database during October, a reduction in issuance and sales from the 899 products with sales of CHF1.18bn added during September.
Several providers brought to market products linked to commodities or commodity indices in October, including Leonteq, which concentrated on multi-barrier reverse convertibles with a call option related to gold, palladium and silver, and UBS, which launched early redemption structures on crude oil as well as a Phoenix autocallable linked to S&P GSCI Crude Oil.
Credit Suisse issued the US dollar-denominated LastLook BRC, while JP Morgan marketed a one-year Phoenix autocall certificates on a basket of shares featuring mining companies (Barrick Gold Corp, Newmont Mining Corp and Goldcorp). The US bank also launched a certificate linked to stocks from companies involved in the hard commodities market Freeport McMoran, Kinross Gold, Petroleo Brasileiro–Petrobras and Vale.
Investors have noted that some commodities have been volatile, but range-bound, according to Konstantinos Kalligeros (pictured), a member of the equities and commodity solutions team at Commerzbank. “Oil, for example, has traded between US$40.80 and $61.30 since the start of the year, and there are good fundamental reasons why it may continue to do so,” said Kalligeros. “At the same time, the realised daily volatility of oil in the past year averaged 42%. Investors have been quick to spot income opportunities in these markets using autocallable products.”
In October, there were twice as many commodity-linked products than in June, with sales volumes standing at $4.3m, more than double the sale for June, when volumes stood at $1.8m. Commodity equity data on the Swiss market shows a similar picture, with more than $68m sold in September, compared to $53m in June.
The most popular payoffs in October were autocallables with conditional annual coupons, which are “effectively” funded by investors “by virtually selling a put option”, according to Kalligeros. “As a result, the product is best-suited for investors who believe volatility is too high, and that prices are range-bound or trending up.”
More generally, investors have focused on blue chip commodities such as oil and certain industrial metals, said Kalligeros. “We believe, however, that the reduction of large institutional assets under management from broad commodity indices means that correlations between commodities have decreased, and opportunities have come up in other markets as well,” he said. “For example, carbon emissions futures have rallied from 2.70 Eur/mt in April 2013 to 8.41 Eur/mt – an equivalent of 51% pa. Likewise, sugar may currently present an excellent opportunity for structured product investors, on the back of supply constraints, a stronger real and increased demand from China.”
Other providers issuing commodity-linked products included Leonteq, which issued two Magnet certificates with reference bond LafargeHolcim and Commerzbank.
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