The Swiss bank continues to be a leading distributor of structured products in the US market and is on track to increase its market share compared to last year.

UBS was recognised as the Best Private Bank at this year’s SRP Americas Conference in Chicago for its high-touch service approach providing education, consulting and execution through personal contact and technology.

This year will stand out as a story of rich market valuations after the strong global equity market rally in the first half of the year - Eric Glicksman

During the relevant period (April 1, 2022, through March 31, 2023), the bank deployed its structured solutions to help navigate geopolitical instability, equity volatility, historic inflation, rising rates and the regional banking crisis, according to Eric Glicksman (pictured), managing director and head of structured solutions at UBS.

“Amidst this backdrop, our product development approach focusing on UBS research, consistency and stability proved resilient,” he said.

UBS reported that its calendar offerings performed “exceptionally well with 96% of US$3.4 billion notional redeeming at par or greater and 85% of over 2600 observations paying coupons”. In addition, the bank reported over US$14 billion in new investments across 3,470 offerings, 14 issuers, 60 structures, and 360 underliers of which US$6.4 billion executed over 2,380 investments were transacted through its Equity Investor proprietary advisor customisation platform.

The bank also leveraged its UBS Solo Portal to provide advisors interactive access to marketing and education, offering details, analytics, lifecycle events, client holdings, reporting and a new roll tool that identifies upcoming maturing/callable positions and proposes reinvestment ideas. According to Glicksman, UBS also facilitated liquidity through its dedicated execution desk on 21,428 transactions worth US$1.65 billion.

“This year will stand out as a story of rich market valuations after the strong global equity market rally in the first half of the year,” said Glicksman, noting that this outcome differed from forecasts put forward at the beginning of the year when the consensus view among analysts was that markets would remain volatile and that macroeconomic conditions would not support a sustained rally in equities.

“From a business perspective, many of our financial advisors sought guidance on ways for clients to invest in this market, beyond the relative safety of high yielding cash alternatives.”

This, added Glicksman, led to new product development, with a particular focus on utilising UBS Research’s investment themes to design products, “including developing investment opportunities for defensive positioning within equity indices, as well as a focus on risk-adjusted exposure to global value, energy, rates and commodities”.

Persistent inflation and the response from the Fed and other central banks have increased interest rates, market uncertainty and risk sentiment among investors, noted Glicksman.

“We have seen a dramatic shift in demand for more downside risk mitigation, defined return strategies, absolute return payouts, short duration, a focus on UBS’s Chief Investment Office forecasts and investments with higher probabilities to meet their expected returns objectives,” he said.  

“We have widened exposure within asset classes – more commodity indices and baskets; rates, sub-sectors of equities – large, small, mid-cap, value, emerging markets, large cap international, geographic equity benchmark indices and single stocks.”

2023 developments

The creation of the Unified Global Markets Americas business enabled the bank to leverage its platform by increasing collaboration among UBS’s structuring, development, origination, sales and execution resources which strengthened its coverage of advisors and clients.

“A key differentiating factor is our high-touch service approach to how we provide education, consulting and execution,” said Glicksman.

“We implement this through a combination of both personal contact and technology. Our specialists educate advisors and clients using portfolio implementation tools and product materials, while UBS’s Chief Investment Office provides independent structured investment-specific analytics.”

This approach is supplemented by technology platforms that “provide advisors interactive access to marketing and education materials, offering details, analytics, lifecycle events, client holdings, and performance reporting”.

Product level

Structured notes have been used as an effective hedge “for clients wary of inflation risk” – the bank introduced market linked notes with no downside market risk at maturity linked to various asset classes including an equally weighted basket of UBS CIO-preferred commodities such as oil, natural gas, corn, soybean, wheat, copper, zinc and gold.

As another potential inflation hedge, and to position for client portfolios for rising rates, UBS offered fixed-to-floating rate notes linked to CPI as well as collared FRNs linked to Sofr with rate floors and caps to lock in returns, according to Glicksman.

“These tactical notes were broadly implemented across our clientele,” he said. “While we received strong demand from clients for yield and defined return strategies, growth strategies have increased in popularity. We recently developed a growth oriented structured investment that resonated well with advisors and clients, giving them confidence and a reason to move money out of cash and add equity exposure in this challenging market environment.”

These products aligned well with research and provided a wide range of possible outcomes depending upon how the Fed manages inflation.

“The investment had compelling features [including] a high single-digit return if called after one-year, otherwise uncapped, leveraged market upside at maturity, and a 20% buffer to any downside market risk.”

Market outlook

Glicksman believes that going forward the challenges that the structured products industry face are more macro in scale and could arise in the form of credit risk affecting regional banks and spill-over to Global Systemically Important Banks (GSIB) credit volatility, from poor equity and bond market performance, a recession in the US, or the potential widespread global slowdown from geopolitical risks.

“However, these events can be turned into opportunities for the structured products market where clients rely on investment solutions that provide for downside risk mitigation, defined returns and potential for growth in order to weather such storms,” he said.

“We will look to increase our asset penetration rates in certain market segments and better align our distribution capabilities and partnerships with our stakeholders in global wealth management, adding additional resources where there are gaps, making improvements to our infrastructure and service model, and rolling out several new technology applications.”