Commerzbank has launched the Twin Win Certificate Eurostoxx 50 in the Netherlands. The certificate, which has a term of just under two years, participates 100% in the rise of the Eurostoxx 50 and, providing the index has not traded below 2,100 points (71.1864% of the strike), any fall at maturity will be paid out as a gain. It's the first time since July 2008 a product with a twin win payoff, also known as bull & bear, has been made available to the Dutch retail investor.
The certificates are the first in a series of new investment products Commerzbank will be issuing in the Netherlands, according to Christophe Cox (pictured), derivatives public distribution Belgium and the Netherlands. "Due to the low interest rates we see that investors are increasingly looking for products for the medium term," he said.
Twin win certificates offer investors the opportunity to capitalise on the rise of the underlying asset, for example the Eurostoxx 50 or the AEX, but at the same time they can turn "a negative performance into a positive performance", according to Cox. "The only condition is that the lower barrier has not been touched during the term. It is an American barrier," said Cox. "That is something investors certainly should pay attention to, the lower limit. Very important too is that the conversion of a negative performance to a positive performance only takes place at maturity, in terms of pricing, in terms of valuation of the product itself."
The product has a relatively short term although maturities will vary, according to Cox. "For the first certificates we have estimated a maturity of between one and two years, depending on the market conditions and the characteristics of the underlying on which we build the product," said Cox.
"We need some volatility to be able to create a nice payoff," said Cox. "Typically this is a product which can offer a lower downside barrier when the volatility is higher. When the volatility decreases these products perform better because the volatility is used to obtain the option at a cheaper price."
The certificate is aimed at investors who expect the Eurostoxx 50 to rise next year, but also want the security in the event the index underperforms and has lost 10 to 15% at maturity, that this negative performance will be turned around into a positive performance, according to Cox.
"That's what makes the category of investment products so attractive," said Cox. "It allows you to further diversify your investment portfolio, to have products in your portfolio which perform well even if the financial markets perform less.
"We see the twin win certificates as a solid alternative to a direct investment in the index. The only downside is that the investor receives no dividend on the index."
The bank expects to launch a range of investment products in the Netherlands in the coming months. "There are products which work very well in the German market and we are looking if we can make these products available in the Netherlands too," said Cox. "Of course, new launches will be accompanied with corresponding educational materials such as brochures, videos and webinars to explain to the Dutch investor how these products work, what the advantages and disadvantages are of including these products in your investment portfolio."
There are 27 structured products with a twin win payoff listed on SRP's Dutch database. The products, of which 26 were launched between May 2004 and July 2008 and have since expired, were distributed via 12 different providers including Barclays, Commerzbank, Deutsche Bank, Dresdner Kleinwort, ING, Lehman Brothers, Robein, Rabobank and Wijs & Van Oostveen.
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