The Singapore bank continues to lead the country’s structured products league tables on the back of a ‘unique’ selection of underlyings and payoff profiles.
United Overseas Bank (UOB) sold close to 5,000 structured notes worth SG$5 billion (US$3.7 billion) in 2020 - a similar record compared to 2019. However, the sales volume in the first half of 2021 increased around 40% compared to the first half of 2020.
During last year, approximately 570 of the bank’s structured notes matured and over 4,500 were redeemed early. By issuer, about 15% of the new issuance was manufactured in-house by the bank while the remaining products were issued by foreign players such as Société Générale, UBS, Credit Suisse, J.P. Morgan and Royal Bank of Canada.
Our structured products continue to be driven by themes in 2021 - Jacquelyn Tan
“Our [structured note] retail size remains the largest in Singapore,” Jacquelyn Tan (pictured), head of group personal financial services at UOB, told SRP.
She attributed the stable performance to the bank’s selection of quality equity underlying and suitable payoff based on the clients’ financial objectives plus an overlay of thematic views.
“During the past one and half years, a growing number of customers became interested in investment themes like healthcare and sustainability,” said Tan, adding that UOB introduced a market-neutral note tracking equity underlyings of US financials including Goldman Sachs, Bank of New York and Citibank in August.
“We are also looking at launching a structured product with underlying in the healthcare sector given that healthcare is a popular investment theme in the wake of [new trends such as] aging population in major Asian countries,” she said. “Our structured products continue to be driven by themes in 2021 as we see opportunities in megatrends.”
UOB began to promote ESG-linked flow notes where the equity underlyings meet its proprietary ESG criteria and the issuers follow an in-house due diligence framework from mid-2020.
“The ESG considerations are integrated into the full suite of our investment solutions across different asset classes,” said Tan. “We work with a diverse group of ESG product specialists such as Bloomberg MSCI and Morningstar Sustainalytics to screen and to score the assets as investment instruments differ in the way they are measured in terms of ESG factors.”
To be classified as green bonds, they must be constituents of the Bloomberg Barclays MSCI Global Green Bond Index.
As of August, the bank’s asset under management (AuM) of ESG-linked wealth management products reached approximately SG$400m driven by mutual funds, with around SG$100m coming from structured notes.
The bank launched in July the first retail ‘charity notes’ in partnership with Société Générale – a percentage of the proceeds are donated to Care France, a humanitarian organization.
“We expect that the number of investors taking to this product will steadily increase as we continue to raise awareness of this first-in-market charity structured note,” said Tan.
Société Générale’s ‘charity notes’ programme was first rolled out in Japan in October 2020 after going live in Europe.
“Given the high market volatility in 2020, the structured note market was attractive to investors and we saw increased demand for growth investments,” said Tan. “A number of clients focused on capital appreciation, which led to the traction of enhanced bonus coupon notes with equity underlyings.”
Specifically, stepdown glider autocallables, stepdown autocallables and stepdown catchups were the most popular payoffs.
“The first quarter of 2021 was a solid start to the year,” said Tan. “While Q2 saw strong double-digit growth year-on-year, there was a slight quarter-on-quarter softening in the industry on the back of a strong Q1 exit for the wealth management business.”
The slowdown was largely attributed to the tightened social measures triggered by new waves of Covid 19 infections in Southeast Asia.
“We have seen a general shift towards an income-focused investment strategy amid market expectations of an eventual rise in interest rates as central banks contemplate to reduce quantitative easing,” said Tan.
According to Tan, the proportion of wealth sales booked non-face-to-face increased to 45% in Q2 21 from the 33% in 2020. In the meantime, the bank’s wealth management fee income grew more than 30% compared with Q2 20.
Partly driven by investors’ burgeoning interest in themes like technology, the bank rolled out in June SimpleInvest on UOB Mighty, the bank’s mobile banking application.
“Based on our observation since the launch, more than 80% of the investors on SimpleInvest are millennials who are investing for the first time,” said Tan.
For treasury products including structured notes, telephone sales remain the primary distribution channel at UOB as investors are accustomed to receiving advice before investing.
“In the first six months of 2021, one in two structured products was booked through non-face-to-face channels including via the telephone, outpacing the one-third of total wealth products booked remotely,” said Tan.
United Overseas Bank (UOB) has won the Best Distributor, Singapore and the Best Distributor, South & Southeast Asia accolades at the SRP Apac Awards 2021 announced in June.