Credit Suisse is pitching the first tranche-based structured products linked to the performance of the iStoxx Europe Demography 50 Index, a smart beta index with a protection, income and leverage overlay screening for high dividends and low volatility.
The new three-year outperformance certificate denominated in US dollars is a capital at risk product and will pay 150% participation in the positive performance of the iStoxx Europe Demography 50 Index. If the final index level is below its strike level, the product pays-out a participation of 50% in the negative performance of the underlying.
"By construction, the index is well suited to provide growth type of exposure," said Julien Bieren, head of equity derivatives structuring Europe, Middle East & Africa (Emea) at Credit Suisse. "We have already launched many such products on the Europe Demography that have been sold to external clients. With this outperformance certificate we are pushing the theme in our own private bank, and so far the feedback is very positive."
The iStoxx Europe Demography 50 Index is the result of a partnership between Credit Suisse and Stoxx launched in the summer of 2015, with the aim to make the demographic issue in Europe investable.
The index aims to capitalise on the demographics theme in Europe by selecting and investing in 50 European companies that are expected to be positively impacted by the shifting landscape. The index universe is derived from the Stoxx Europe 600 Index which appears in more than 200 products linked in different versions across markets. The sectors featured in the index are insurance (25%), utilities (21%), real estate (16%) and health care (10%). Stocks are screened for high historical dividends and low realized volatility; while portfolio weightings are defined based on the inverse of their 12-month historical volatility with a 10% cap. The index is calculated in euro and US dollars, and available in price, net and gross return versions.
"The index is live since August 2015 and so far has outperformed the Eurostoxx 50 index by around 8.5%," said Bieren. It is the first time the index has been brought to market in Switzerland, although there are 10 live structures in the Belgian market sold by BNP Paribas Fortis, Belfius Bank, AXA Belgium and Crelan.
According to Bieren, shifting demographics "will bring about changes across the economy such as impacting spending patterns, improving technology, changing infrastructure and encouraging financial innovation, which in turn will have a long-term impact on stock prices".
The global demographic trends include decreasing population growth, lower birth rates, longer life expectancy as well as the increasingly aging population. According to the Swiss bank, these demographic changes have a major impact on assets and economic indicators (e.g. GDP, consumption, inflation, monetary policy, capital flows, equity/bond prices, and house prices) and have an impact on other areas of the financial markets.
"With low interest rates and reasonably high level of implied volatility, there is a sustainable need for indices that are not market cap weighted," said Bieren. "Index providers and banks will actively refine the methodologies. And more importantly there is a lot of focus on upcoming investment themes."
Some the "promising topics" for structured investments in 2016 identified by the Swiss bank includes beneficiaries of strong US dollar, US technology, Swiss quality stocks, European recovery, US banks, European export companies and beneficiaries quantitative easing, as well as M&A activities and small countries and markets.
Credit Suisse is also promoting other trends and thematic investments around healthy eating, fitness, batteries (Li-ion), antibiotics, smartwatches, women in senior management, digital payments, beneficiaries lower energy prices, cyber security, video gaming, big data and internet companies.
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