The Euronext Cac Large 60 Ewer Index (ticker: CLEWE), which was first launched in May 2015 and is licensed to Natixis, is the most successful of a group of so called 'market access' indices, which have been developed by the French bank. During the first semester of 2017, three big campaigns linked to the Cac Large 60, from Groupama (Defineo Mai 2017; Porphyre Mai 2017; Ananké Mai 2017), Caisse D'Epargne (Zenith 2; Altitude Juin 2027) and Barclays Wealth (Barclays Dimension France 2), totalled to a global amount of €900m in the French market.
"The Cac Large 60 is successful [...] because of our close relationship with French retail networks, either internal (BPCE) or external to Natixis," said Aurelien Rabaey (pictured), equity derivatives head of Europe, Middle East & Africa (Emea) sales and global head of financial engineering at Natixis.
Daily trades on structured products linked to the index are common with independent financial advisers (IFAs) too, according to Rabaey. "In 2017, we estimate that during the first quarter, in the French market, €1.5bn of nominal value was distributed through more than 100 issuances on the Cac Large 60."
Indeed, when you look at the volumes, the CAC Large 60, with sales of €1.6bn according to SRP data, was the second largest index sold on the French market last year - behind Eurostoxx 50 (€4.8bn). "We want to replicate this in other markets, and that's why we have a global strategy on delivering local indices," said Rabaey. "For example, we have the Cac Large 60 for France, BeNe40 for Belgium and the Netherlands, Euro iStoxx 70 for Europe, FTSE Custom 150 for the UK, OMX Stockholm 40 for Sweden, and more are to come."
According to Rabaey, the Natixis team label then indices 'market access indices' because they give efficient access to structured products and enable clients to tap areas that typically-speaking they wouldn't engage with. "If you compare the Cac Large 60 to Cac 40, you see that you have more stocks. Compare the iStoxx 70 to Eurostoxx 50 and you have a wider universe as well.
"What's more, we prefer market access terminology to smart beta - performance will tell us if these are smart, so we will have to wait and see," said Rabaey. "The key success behind the creation of such indices is diversification and transparency - and all market access indices are equally weighted."
Benchmarks such as Cac 40 and Eurostoxx 50 are not equally weighted because they are representing a market, a regional economy, according to Rabaeu. "They were not designed to be the underlying of a structured product. However, when we propose an index to a client, the simplest and most secure attribute is the equal weighting.
"The third key factor in the success of these indices, after diversification and transparency, is pricing efficiency," said Rabaey. "Thanks to the synthetic dividend, the end investor will no longer suffer from the illiquidity of implicit dividends that penalise investors when it comes to buying structured products."
The BeNe 40 Index is the better example to illustrate this, as, according to Rabaey, due to synthetic dividend, Belgian investors in structured products are given back access to the Belgian market. "Another example is the FTSE Custom 150, which has totalled close to 15 issuances [...] while, the iStoxx 70 is getting more and more popular across Europe. In short, we will continue to promote local branded indices to investors as we believe it's the best way to reach diversification," said Rabaey.
While these market access indices were initially designed for retail investors, institutionals are also showing a keen interest, according to Rabaey. "More and more institutional investors searching for yield are now enticed by the diversification and pricing efficiency that this new generation of indices can provide," he said.
Beyond the market access indices, Natixis is also exploring socially responsible investing (SRI) indices, said Rabaey. "This is because the SRI theme is increasingly present in the active management world, and not in the passive management - which means structured products."
The Euronext Climate Orientation Priority 50 EW ER Index, which was launched in July 2016 and comprises 50 European low carbon and low volatility stocks, was the bank's first attempt in the SRI/climate index space. The index did well in the retail networks, according to Rabaey. "This was a success in terms of sales - approximately €800m was sold on two issuances, but it also confirms the appetite of retail clients for this type of indices," said Rabaey.
Since COP21, European distributors are keen to promote these kind of thematic indices, according to Rabaey. "The SRI thematic is still a territory to be explored in the structured product universe, and our long-term objective is to be a leading player in this field," said Rabaey.
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