Net assets for capital-protected structured funds in Belgium were €8.14bn at the end of the second quarter of 2017, down by €810m, or 9%, from the previous quarter, according to the latest figures released by the Belgian Asset Managers Association (Beama). As of June 30, 2017, capital-protected funds made up 4.47% of the total Belgian fund market, with €7.08bn of outstanding assets linked to equities and €1.06bn to interest rates, loans and currencies. The decrease can be fully attributed to a combination of net outflows and negative investment returns of the underlying assets, according to the trade association.

Whether a rise in interest rates would lead to an increase in demand for capital-protected funds remains to be seen, according to Josette Leenders (pictured), director asset management & private banking and director general at Beama. "An increase in interest rates would result in a lower zero bond needed in capital-protected funds, hereby offering them more leeway to buy derivatives and making them more attractive," said Leenders. "Yet, an increase in interest rates will of course also influence a whole range of other financial products and investment decisions."

When comparing the evolution of capital-protected funds with that of bond funds (on the assumption that the portfolio of capital protected funds is 90%-95% zero coupon bonds), the former mainly registered outflows over the last five years are the reason for the decline, according to Leenders. (See graph above.) "On the other hand, bond funds registered both inflows and outflows over the last five years, which resulted in a fluctuation line in the graph," said Leenders

From a statistical point of view, the bond funds have the lowest variance (fluctuation around their mean), whereas the direction of the capital-protected funds is the easiest to predict, according to Leenders. "Since the outflows in capital-protected funds outweigh the inflows by almost a factor three over the last five years, there are more capital-protected funds reaching their maturity date," said Leenders. "Thus, the portfolios of capital protected funds will, generally, be made up of zero bonds relatively close to their maturity date, resulting in a lower spread."

KBC was the sole provider of new structured funds in the second quarter of 2017, according to SRP data. The bank-insurer issued eight funds worth a combined €160m between April 1 and June 30 (against nine products/€190m in the first quarter of this year). Perspective Universal Selection 100 Head Start was the best-selling fund during the quarter. The six-year, US dollar-denominated product, which is linked to a basket of 30 stocks, collected €37.2m during the subscription period.

Thirty-seven capital protected funds selling €1.2bn at inception (an average of €36m per product) matured during the second quarter. The average annualised return of maturing products, which included offerings from BNPP Fortis, BPost Bank, Centea, Fintro, ING and KBC, was 4.7%. Of these, KBC Equisafe Quality Ladder 3, which returned 169.52% after 5.5-years (9.95% pa), was the best performer.

The Belgian UCI (Undertakings for Collective Investment) sector registered a decrease of 4% in the second quarter of 2017, despite an increase in net subscriptions. At the end of June, net assets of publicly-distributed funds in Belgium stood at €182.3bn. Macroeconomic factors, such as volatile stock exchanges, the rise of the long-term interest rates in the international context and exchange rate fluctuations have all affected the valuation of the funds, according to Beama.

Click the link to view the Beama figures for the UCI-sector second quarter 2017 (Dutch/French).

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