Societe Generale is marketing among German and Austrian investors a reverse convertible structure linked to the S&P GSCI Brent Crude Oil Index (ER) which is expected to deliver "attractive coupon payments in rising, sideways and falling oil prices".
"After the price fall in oil there is now significant momentum around the oil price providing an interesting entry point," said Alana Maue (pictured), product manager cross-asset at Societe Generale in Germany. "The feedback we get from traders and investors is that the price is now on the rise and although it is not expected to reach the levels seen in the past it is a good opportunity to capitalise on the upward trend expected on the price of Brent crude oil."
The new SG Brent Index Bond Protect Express is a capital at risk product and will pay investors a 3% semi-annual coupon with a safety margin of 45% and a short-term investment horizon of up to two years. The new S&P GSCI Brent Crude Oil Index-linked structure is aimed at investors seeking a fixed semi-annual interest payment and desire the biannual chance of early repayment or assume that the reference price during the observation period never reaches the barrier or falls below the barrier, according to Peter Bösenberg, head of public distribution Germany & Austria at Société Generale.
"Investors will receive the interest payment regardless of the performance of the base value," said Bösenberg. "[The coupon] may be repaid early, if the closing price of the underlying on the valuation date is at or above the redemption threshold."
The bank's back-testing shows that the reference price in the S&P GSCI Brent Crude Oil Index Bond Protect Express has never touched or breached the 55% barrier during the observation time period.
This is the second tranche of this structure in a little over one month which suggests that the product has resonated with investors and there is demand from investors to get exposure to this asset, according to Maue. "Brent Crude Oil is a very favored underlying in Germany and we have seen it in different products types (leverage/investment) and payoffs," said Maue. "The choice of the S&P GSCI Brent Crude Oil Index, as opposed to the future price, is because it tracks the future and its performance on an ongoing basis. We believe that the reverse convertible structure with a fixed coupon and a low barrier are meeting the goal of many retail investors seeking income through a commodity index."
The launch follows a research note by Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices, analysing the recent performance of the S&P GSCI which has just recorded its third consecutive positive month and gained a total of 2.2% in May.
"This is the first time commodities have gained three months in a row since April 2014, and is the biggest three month gain (18.1%) since July 2009 when they returned 20.9%," said Gunzberg. "Year-to-date, the total return of the S&P GSCI is 9.8%, and has gained 26.2% off its bottom in February. Commodities are now outperforming stocks for the first year since 2007."
"Commodities are now outperforming stocks for the first year since 2007," said Gunzberg. "If this outperformance holds through the year's end, it will break the longest number of consecutive years that stocks outperformed commodities. Following the last time equities outperformed commodities for near as long in 1980-86, seven consecutive years, commodities returned almost 300% through 1990 when the trend reversed."
According to SRP data there are 25 live tranche-based products in Germany featuring the S&P GSCI Brent Crude Oil Index out of 56 marketed since 2007. Landesbank Baden-Württemberg dominates the issuance of certificates linked to this index (34 products) and has 16 live structures, followed by Societe Generale with five live products, BNP Paribas with three products, and Goldman Sachs with one.
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