CSOB, the Czech subsidiary of KBC, is cashing in on the success of a number of popular tranches of structured and capital-protected open-ended funds featuring Constant Proportion Portfolio Insurance (CPPI) strategies.

CSOB is the biggest provider of structured and capital-protected products (funds and unit-linked products) in the Central and Eastern Europe (CEE) region. The bank has been active in the structured products market since 2000 when it rolled out its first capital-protected fund and reached its zenith in 2007, when it raised more than CZK16,8bn (€610m) in sales. Since then the best year for CSOB (in terms of gross sales) was 2013, when the bank sold CZK11bn (€400m).

According to Erik Machac, product development manager at CSOB Asset Management, sales of CPPI funds picked up in 2013 on the back of the bank’s educational approach which allowed its sales force to explain to the bank’s “conservative” clients how funds protect client investments and participate on potential market growth.

“We found really good sales concept - instead of investing only into one fund the bank recommends that clients split assets into four different funds, whose reset dates are set at different time,” he said. “We don’t say all funds perform well every time and it might be difficult to pick up the best one, but we explain to clients that success lies in diversification of respective investments and its timing. We recommend them to invest into four funds with different quarterly reset dates so that they can protect themselves against wrong timing.”

Open-ended CPPI funds
In 2007 the bank launched its first open-ended fund, KBC Master Fund ČSOB Chránený Fond, which was, however, withdrawn from the market in 2012 and in 2013, the bank’s CPPI product line was re-launched in the Czech Republic with significant differences and sales approach. Currently CSOB offers 12 CCPI funds which are continuously available for subscription under a unified product line called Portfolio Pro.

All funds are managed via CPPI algorithms, comprising floor protection and gearing mechanisms within open-ended mixed funds of funds where the risky part of the portfolio is linked to actively managed equity (and alternative assets) funds and non-risky assets are linked to bond and money-market funds (and cash). Asset allocation (i.e. allocation to shares, bonds, cash, real estates and alternatives) is dynamically managed on daily basis depending on market conditions and distance to floor which alternate from 90% to 95%.

“Each fund has its protection period defined by the reset dates at different time (February, May, August, November),” said Machac. “As a matter of fact, this (together with the floor protection) has been a key success component for the funds to become so popular lately.”

The last addition to the Portfolio Pro range was launched in February 2014 (CSOB Portfolio Pro unor 90).

Education
According to Machac, the bank’s educational campaign promoting CPPI funds which was launched in September 2013 provided clients with daily pricing for each fund and every material change in portfolio allocation (gearing).

“Our investors can see how our managers respond to market movements,” he said. “The majority of investors using CPPI funds are conservative clients so they can see how CPPI portfolio managers reduce the funds’ exposure to equities when markets fall (based on triggers set by CPPI algorithm).”

CSOB bank acts as distributor for structured and CPPI funds which are built in co-operation with CSOB AM in Prague and KBC AM in Brussels. “Our CPPI funds are, however, managed by a team of senior portfolio managers based in Dublin,” explained Machac.

Machac added that CPPI funds are very popular in Belgium and that total assets under management (AuM) stand at €18bn, which is around 20% of KBC AM AuM.

Out of the 12 Portfolio Pro funds, four are denominated in euros, but currency ‘play’ among clients is minimal, said Machac.

“In addition, currency risk itself is limited since portfolio managers of all Portfolio Pro funds hedge fully their FX exposure,” Machac said.

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