Low interest rates and the increased costs of zero coupon bonds have accelerated the use of strategy indices in structured products, according to Nico Langedijk (pictured), regional director, Switzerland, Scandinavia and The Netherlands at Stoxx, speaking at The Lifecycle of a Strategy Index panel discussion at SRP's Third Annual Nordic Structured Products & Derivatives Conference in Stockholm, on September 27.

The product characteristics for capital protected products did not look that good anymore and the profit margins were also reduced, according to Langedijk. "More and more banks started to look at how they could offer more price efficient structures and they started to look at strategy indices," said Langedijk.

The first generation of strategy indices were select dividend, which were launched in the 1990s, since which volumes have greatly increased, according to Langedijk. "Year-to-date 2017, we are at €1.2bn of new assets and that is just in the Eurostoxx Select Dividend Index.

"Select dividend indices select companies which are dividend payers and are also weighted based on dividend yields," said Langedijk. "But, if you look at the volatility, that is relatively high. Of course, they are very much suited for capital protected products and they are also used a lot in autocallable structures."

Stoxx has a number of exclusive indices which are mainly based on the research of banks, including the Global Women Leadership Select 30 Index and the Global Demography Select 50, which are both based on the research of Credit Suisse, according to Langedijk. "Recently, we launched the Global Transitions Index based on the research of Goldman Sachs," he said.

Richard Darville, head of structuring and trading at Exceed Capital, said that the issue was to be able to get access to a specific asset class with a suitable pricing. "In the past five years, exclusivities for indices were not that efficient from a pricing perspective, which means that the participation and the protection or the coupon are not that relevant," said Darville. The market has changed and that Exceed has been able to access asset classes such as women in leadership and global infrastructure, said Darville.

"Thanks to the research of Credit Suisse, we could see that, between 2009 and 2014, the average return of firms with more than 50% of women within the boardroom was 28.7% per annum, compared to the average of the MSCI World, which was roughly 11.7%," said Darville. "From a strong macro case, we could see that it was accessible for us for either solution that could give a capital protection or enhanced yield in a warrant, for example. We also noticed that index providers and also banks were able to help us in terms of structuring."

The indices that sell the most are the regional indices, according to Langedijk. "The Stoxx Europe Select 50 and the Diversification Select 50 have been sold widely as well as the Global Select 100 and the Emerging Market Select 100," said Langedijk. "Then there are some themes which are very popular: ESG of course, especially in France and in Belgium, and recently there is a lot of focus on low carbon, so the Low Carbon Index has been sold as well as the Global Infrastructure and the European Select."

Exceed has its own distribution internally and considers structured products a complement to other asset classes, according to Darville. "We have noticed from our clients, in their expression of needs and yield, that strong research should be the base of a selection," said Darville. "Then we can add a filter from the payoff perspective, or yield perspective. We need to have a strong case."

Stoxx also wanted to develop its own benchmark range, according to Langedijk. "Non-proprietary indices that can be priced by everyone," he said. "The basic is that, by combining high dividend with low volatility, the aim was to reduce the pricing of the hedge cost by approximately 50% to a standard call on the Eurostoxx 50, and, of course, to offer greater protection and higher participation to investors," said Langedijk. "The most important thing was that we wanted something that was easy to explain to the end client, easy to explain to the regulator and easy to explain in marketing material."

The Eurostoxx Select Dividend 30 has been used as underlying in 1,463 structured products across 21 jurisdictions, according to SRP data. Of these, 301 products worth a combined €4.7bn are live. One-hundred and ninety-two products with a sales volume of €3.8bn are linked to the Stoxx Global Select Dividend 100.

Click the link to view the Lifecycle of strategy indices presentation.

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