Q1 results for the Swiss market for structured products show slightly higher sales and a slightly stronger trend toward products on a fixed income basis, according to the latest market statistics released by the Swiss Structured Products Association (SSPA).
In the first quarter of 2016, structured products created in or for Switzerland generated sales of more than CHF66.2bn (€59.5bn) with non-listed products accounting for about 70% of the total sales, according to the Swiss trade body. Equities and foreign currencies were the most actively used asset classes with demand for fixed income products seeing a year-on-year increase of 80%.
Although the market environment in the first quarter was very challenging, investors were looking for innovative products to obtain any investment yield, according to Jurg Stahelin (pictured), executive director at the SSPA. "Hence, the demand for structured products slightly increased compared to the strong Q1 in 2015," said Stahelin.
According to Stahelin, yield enhancement products, including barrier reverse convertibles, were "highly demanded" in the first quarter, although capital protection products experienced the biggest increase compared to 2015. "Obviously the risk appetite has been reduced due to the volatile markets," said Stahelin. "Against this backdrop, there was also a shift towards fixed income as underlying asset of structured products. Nevertheless, equities remain the most popular underlying asset."
Aside of the 1% increase in sales of structured products compared to the same period of 2015, the SSPA reported several "shifts" compared to the previous year in product groups as a percentage of the total.
According to the trade body, yield enhancement products accounted once again for the lion's share at 59%, followed by leverage products (16%). Despite a relative year-on-year decline of nearly 50%, participation products formed the third largest category with a share of 12% ahead of capital protection products at 8%. Capital protected structures continued to drive sales with a 175% relative growth over the previous year.
Equities and foreign currencies continue to be the most utilised the underlying assets. Equity products remain the largest investment class in spite of dropping from 53% of the total (Q1 2015) to 44%, followed closely by foreign currencies at 43% (previous year: 38%). Fixed income underlyings increased by more than 80% year on year, boosting their relative share of the total to 8.5%.
According to the SSPA report, non-listed products continue to dominate the Swiss market making up 73% of the total, a 5 % year-on-year increase over Q1 2015. In addition, the SSPA reported that around two-thirds of sales (63.4%) were generated in the primary market, while transactions are almost exclusively executed on the secondary market (nearly 97%).
From a currency perspective, the Swiss franc (CHF), the euro (EUR) and the US dollar (USD) were the main currency denominations for structure products sold in Switzerland in Q1, comprising 86% of the sales volume. Year-on-year comparison, USD-denominated structures became the main currency (more than 35%), whereas EUR- and CHF-denominated products fell as a percentage of the total sales volume to 31% and 19%, respectively.
SSPA's market statistics encompass "all engineered products" in Switzerland regardless of which jurisdiction they are sold in which means that figures on exchanged-trades on SIX Swiss Exchange cannot be compared to those supplied by the Swiss National Bank, according to André Buck, head of sales at SIX Swiss Exchange.
"April was an uneventful month in respect to trading which carried on from the low activities in March," said Buck. "We had a good number of new listings of 3,189, +23% vs previous month, already in anticipation of the triple witching expiry in June with over 4,000 expiries. The limited trading range in the SMI Index and dividend season (many companies pay out dividend) had its effect on volatility and left leverage investors on the sideline so volume was subdued."
SSPA's quarterly statistics are aimed at improving the transparency of the Swiss structured products market, and make part of a number of initiatives the trade body is seeking to implement in 2016.
"Our main goal in the current year is to promote to systematic deployment of structured products in a portfolio context," said Stahelin. "Therefore, we're developing a tailor-made tool for relationship managers to explain the potential and the advantages of structured products in customer portfolios. This new application will allow relationship managers (RMs) to mix structured products in model portfolios and to simulate different market scenarios."
The SSPA members Barclays, Banque Cantonale Vaudoise, Credit Suisse, Commerzbank, Goldman Sachs, Julius Baer, Leonteq, Notenstein La Roche, UBS, Vontobel, Zurich Cantonal Bank and two further institutions took part in the survey for the first quarter of 2016. They represent a majority of the Swiss market.
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