Italy’s structured products providers are among a small minority of European providers who can boast of increasing sales volumes in a landscape of falling or stable markets in 2014. Sales volumes in the country were up 34% on the year, despite the fact that product issuance fell by 10%. This follows on from the process of consolidation which has resulted in fewer providers in the market and higher sales by established banks like Banca IMI, Banca Aletti and BNP Paribas. The trend can be observed clearly in the last month of 2014, which saw 10 fewer products issued for an estimated sales volume of €940, 12% higher than in December 2013.
Last year produced a record for certificate sales, with €8.1bn sold, up from the €6.3bn in 2013. “Certificates have several advantages for investors,” said Luca Gamna (pictured), private banks and family office sales at Banca IMI. “They have a proven track record when it comes to the performance of the product, not to mention they are cheaper than alternatives, such as bonds.”
Investment certificates have been rising in popularity since 2010, when changes in the tax system made it costlier to structure obbligazioni, or bonds, and they accounted for 93% of the market in 2014. Not only are certificates cheaper and more flexible than bonds (enabling manufacturers to structure low-priced yet better tailored products), they have consistently outperformed alternative investments such as fixed-income and cash deposits.
There was a significant pick-up last year in equity protection certificates, which were up seven percent on the year and accounted for 39% of the total market. Banca IMI, BNL/BNPP and Deutsche Bank were the major issuers of these certificates in 2014. “These products, which typically offer 90/95% capital protection, are especially popular with risk-averse investors,” said Gamna. “With their upside participation and limited and defined loss, equity protection certificates are an excellent alternative to low-yield, fully capital-protected investments.”
However, autocallable products with an in-built soft-protection barrier were once again the most popular product in the Italian market thanks to their ability to terminate early, returning on average between five and eight percent pa.
The market showed a clear appetite for products linked to US equities in 2014, particularly after a supportive data release from the Federal Reserve last September. Popular shares used as underlyings were Amazon, eBay, SolarCity, Apple, Google, and Netflix, while indices like the S&P500 were less favoured.
US dollar-denominated products, such as UniCredit’s latest Credit Linked series, also registered popular demand among investors seeking to participate in the US economy’s rebound. Providers Banca IMI, Deutsche, Mediolanum and BNPP also issued a number of certificates denominated in US dollars. “Certainly there has been a spike in demand for US-linked products, particularly in light of extensive financial media coverage of the US throughout 2014,” said Gamna. “However, Italian and European equities remain the most popular as Italian investors are more familiar with these companies.”
Equity-linked products spurred the market in 2014 and are expected to do so in 2015, particularly in light of the European Central Bank’s Quantitative Easing programme. “Equity will continue to be the dominant asset class in 2015, but FX – traditionally niche in Italy – could also present opportunities, especially as credit-linked notes will become harder to distribute to retail investors,” said Gamna.