KBC Asset Management's ability to deliver "appropriate solutions" for investor portfolios in a demanding environment has earned the Belgian asset manager several accolades across a number of categories in this year's SRP 2017 European awards, notably 'Best Distributor' and 'Best Performance' in Belgium and the Czech Republic.
It has been a couple of years now that KBC talks to clients not on a product level but rather from a complete portfolio perspective, according to Christiaan Sterckx (pictured), chief research and solutions officer at KBC Asset Management.
"We see the appetite for pure point-to-point structured products shifting towards more asset allocation-oriented techniques which seek to diversify the portfolio risks", said Sterckx, adding that the combination of protection with asset allocation techniques is certainly something praised by KBC's clients. "Next to these type of solution, we have launched a number of structured products linked to a basket of stocks in 2017. Protecting 90% of the initial capital on the downside and then capping the performance on the upside is probably the most popular payoff nowadays. In addition, at KBC we are attaching all due importance to linking our products to diversified stock baskets and you will definitively find the most popular products on that side."
KBC-Life Timing Booster New Quality Stocks 2, the best performer of the 96 KBC products in Belgium analysed by SRP, is representative for KBC's widely-marketed payoff type. The 4.5-year insurance wrapped fund was linked to a basket of 20 shares returned 191.85% / 15.44% p.a. at the end of the investment term.
The fund "has excelled thanks to the quality stocks selection" [based on fundamentals of KBC's research] combined with the booster payoff, and a low market entry point with timing feature, according to Sterckx.
"The combination of these three factors made it possible to secure this huge performance of this type of payoff and product," said Sterckx.
In 2017 the bank recorded the return of a "New Kid on the Block" in the shape of structured products linked to baskets based on the principle of socially responsibly investment (SRI), according to Sterckx.
"Throughout the year KBC launched five Perspective Low Carbon Emission 90 Timing products, a 'kind of novelty' as the asset manager has already offered SRI-linked products before," said Sterckx. "In Belgium we have been pioneers in SRI-related investments and we have been using SRI-compliant underlyings in our structured products offering as well," said Sterckx. "Now this is certainly a theme which is back on the radar."
The four-year funds, with timing feature, participate in the performance of a 30-share SRI basket, subject to an overall minimum capital return of 90% and an overall maximum capital return of 170%.
The Belgian structured products market registered a decrease in both issuance and sales in 2017. Three hundred and eleven products with estimated sales of €4bn had strike dates between January 1 and December 31, 2017, down from 326 products worth €5.6bn that struck during the same period in 2016, according to SRP data.
The reasons for the slow-down in activity is the low interest environment and the fact that clients are piling up liquidities on savings accounts, according to Sterckx.
"Capital protected products are particularly favored by investors in Belgium and that kind of structures has certainly not been obvious to build over the last year," said Sterckx. "That is why we keep offering solutions paired with some kind of built-in protection like our constant proportion portfolio insurance (CPPI) products that continue to represent a big part of our business."
As a distributor of structured funds, KBC is seeking to capitalize on the regulatory framework set up by the Markets in Financial Instruments Directive (Mifid 2) regime.
"Mifid 2 is certainly serving a noble cause as it brings a lot of transparency to investors," said Sterckx, noting that labelling structured products "complex" has had a negative impact on investors' perspective as it disassociates them [even capital guaranteed] from less experienced investors.
"As per normal business logic, in the past we have always regarded structured products as a kind of a step-up product which allows investors to make their first steps in the world of investments, or to get their first exposure to equity markets via, for instance, structured products with capital protection," said Sterckx. "Labelling structured products "complex" may imply that certain distributors do not wish to offer them to unexperienced clients."
The industry is "certainly threatened to end up caught in a kind of Catch-22 situation" when distributors are hindered from offering these products to an audience willing to bring their investment experience one level up, notably via structured products, according to Sterckx.
"The industry has made this point, but it was not followed by legislation, and that is a situation the industry will have to deal with," said Sterckx.
For the awards 'Best Distributor' and 'Best Performance' Belgium, SRP considered 73 structured products with combined sales of more than USD 2.6bn from the bank - with strike dates between October 1, 2016 and September 30, 2017 - and 96 products, which on average returned 6.4% per annum, that matured during the same period.
For the awards 'Best Distributor' and 'Best Performance' Czech Republic SRP considered 51 structured products with combined sales of more than USD 798m from the bank - with strike dates between October 1, 2016 and September 30, 2017 - and 10 products, which on average returned 2.9% per annum, that matured during the same period.
The awards, for which KBC has also been shortlisted for Best Distributor, France & Benelux, Best Distributor, Eastern Europe and Best Capital Protected Distributor, Europe will be presented on the SRP's 15th Structured Products & Derivatives Conference 2018 on February 7-9, at the etc. venues, County Hall, London.
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