Axa Bank Europe has introduced the Optinote World Demography to its clients in Belgium. The six-year structured note offers 100% participation in the performance of the iStoxx Global Demography Select 50 EUR (price), subject to an overall minimum capital return of 90% and an overall maximum capital return of 150%. It is the second product distributed by the bank linked to the demography theme this year; in March Axa Bank launched Optinote Demography for which the iStoxx Europe Demography 50 EUR (price) was used as the underlying index.
"[Optinote Demography] was a success and that's one reason why we decided to launch a product with a similar type of thematic index," said Caroline Boulenger (pictured), head of product management daily banking, savings & investments at Axa Bank Europe in Antwerp.
"In order to diversify, we have this time opted for the global index instead of the European index. We believe that companies who can benefit from demographic trends could perform well, resulting in a potential attractive coupon after six-years for our clients," said Boulenger.
Although the majority of Axa Bank's sales is in 100% capital guaranteed products, the bank certainly has clients who are willing to give up full capital protection in return for a more attractive payoff, according to Boulenger. "Traditionally clients who buy structured products at Axa Bank prefer 100% capital guaranteed over 90% capital guarantee products, however, in the current market environment it is not always easy to develop a 100% capital guaranteed product with an attractive payoff," said Boulenger. "Even though a 90% capital guaranteed product implies potential capital loss, it allows us to offer a more attractive product for the clients. It allows us to diversify our offer, so that our clients do not always have to buy the same type of product."
Axa Bank often uses thematic/strategy indices for its Optinotes instead of the traditional benchmarks. This year for example we have seen products from the bank linked to the Global Megatrends Index, iStoxx Europe Quality Income UH and the Stoxx Global Select 100 EUR Index.
"The indices we use are not 100% proprietary indices," Boulenger explains. "When choosing an index you also need to take into account the cost of buying an option on this index," she said. Options on such indices are often cheaper than those on traditional benchmarks, according to Boulenger. "An option on the Eurostoxx 50 would be too expensive and structuring an attractive, profitable product would be difficult when using an index like this."
The iStoxx Global Demography Select 50 EUR price is derived from the Stoxx Global 1800 and selects stocks from sectors that will be impacted by demographic changes and which pay high dividends and display low volatility. The index constituents are weighted according to the inverse of their volatility, with a cap at 10%. The base value of was set at 100 as of March 22, 2004. The index, which is reviewed quarterly, closed at 371 basis points on October 14, 2016.
The SRP Belgium database lists 18 live structured notes from Axa Bank, including seven Optinotes which were issued by the bank this year.
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