Products issuers are more optimistic when it comes to structured investments in 2017, with 45% of surveyed indicating that they anticipate a better environment for doing business in the first half of 2017, according to the latest annual survey by the Deutscher Derivate Verband (DDV).
Twenty-four percent of those 21 issuers responding, representing more than 95% of the market for structured securities in Germany, said that business was better, although 43% expect no changes, with 33% saying market conditions worsened in 2016, compared to 2015.
Equity was a more popular asset class in 2016 than it was in the previous year, with issuers anticipating an increase in the use of the Dax Index for the first six months of 2017. "Given the sometimes fierce stock market fluctuations, it is understandable that the issuers in Germany are approaching the New Year with positive expectations," said Lars Brandau (pictured), managing director at DDV. "No other financial product offers such opportunities as structured securities in difficult markets."
The survey reveals there was a reduction in demand for fully capital protected products over the year, which was attributed to the low interest-rate environment, however, capped fully capital protected products (capital protected products with coupons) increased in popularity. Two product types, reverse convertible and autocallable (express certificates) saw the largest increase, with 40% of issuers suggesting that autocallables will be the product type that improves quickest, followed by reverse convertibles, which 25% of those surveyed predicted would be the best improver.
Seventy-five percent of respondents reckoned that the competitive environment in 2016 was tougher, with 80% expecting the same next year. As a result, half of those questioned said that they expect fewer providers to be active in 2017.
The majority of issuers (60%) said that a positive experience in the past was the main consideration for retail investors when it comes to choosing a product. "Both good experiences and outstanding customer service are among the positive features of the structured products issuers," said Brandau. "The situation in the markets and the arguments are, therefore, clear for using certificates and warrants. All products diversified in a reasonable framework and tailored to the individual risk-reward profile, will remain basic building blocks for sustainable asset management."
According to 50% of the issuers indices will be the most sought after underlying for leverage products, with 40% assuming that this underlying will be the first choice for investment products. Factor certificates will see the strongest increase in the leverage section, according to half of those surveyed. Commerzbank (61% market share), followed by Deutsche Bank (21%) and Vontobel (14%) are the three biggest providers of factor certificates, according to the DDV.
Around 50% of issuers expect regulation to be even more prominent in 2017 than it was in 2015, with 30% expecting only a slight increase in the regulatory burden, and 15% of the respondents suggesting there will be no change and 5% predicting a decrease in regulatory challenges. "Regulatory measures should, in principle, follow the principle of proportionality," said Brandau. "It is important that the concrete benefits for the retail customer remain in focus. Investor protection is always useful when more transparency is achieved and the investor can better understand the risk-reward profile of his product."
Click the link to view the DDV survey.
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