SRP reviewed how three of the biggest funds of structured products from continental Europe performed in March and Q1 2024.
The Luxembourg domiciled Sicav fund aims achieve its objective of generating long-term returns consistent with the preservation of capital, through a strategy focused on structured notes linked to underlyings in the global pharmaceutical and biotechnology sectors.
Forte Pharma Fund experienced a solid recovery in March due to overall positive sector and market momentum, favourable fundamentals, and company-specific drivers. It achieved a growth of 4.1% in March, surpassing both the broader market MSCI World Index (+3.0%) and the sector’s proxy, the MSCI World Pharmaceuticals, Biotechnology & Life Sciences Index (+1.9%).
Our investment strategy and the features of structured products allow us to benefit from superior growth in the event of a recovery in certain names to which we have higher sensitivity - Dmitry Reykhart
March was not an active month for portfolio rebalancing, and the fund maintained its overall exposure to 23 major big pharma names via 20 structured notes from nine different issuers, with an average coupon of 24.7% and an average maturity of 26 months.
“Our investment strategy and the features of structured products allow us to benefit from superior growth in the event of a recovery in certain names to which we have higher sensitivity,” Dmitry Reykhart (pictured), chairman of the board at Forte Pharma Fund, told SRP.
The favourable performance of Pfizer (+4.5%), Amgen (+3.8%), Sanofi (+3.5%), and GSK (+2.6%) all contributed positively to the fund’s results in March.
“We maintain our positive outlook on the industry and major players due to relatively cheap valuations of big pharma majors compared to sector and market average multiples, which bolsters our belief in the recovery to continue,” said Reykhart.
The Forte Pharma Fund has US$61m assets under management (AuM) as of 31 March 2024. The fund was launched on 1 October 2020 and the minimum subscription is US$200,000.
Market Stability Fund (formerly Mondriaan Structures Fund)
This Dutch fund invests in structured products with a conditional principal guarantee.
On 1 March 2024, the fund changed its name from Mondriaan Structures Fund to Market Stability Fund.
The new name reflects our objective: we strive for a long-term return that is comparable to equities but with a lower investment risk - Jeroen Sinnige
“The new name reflects our objective: we strive for a long-term return that is comparable to equities but with a lower investment risk,” said Jeroen Sinnige, the funds’ managing director portfolio management.
In addition, with the name change the company also wants to prevent the fund from being associated with other providers of investment services.
In the first quarter of 2024, the net asset value of the fund increased by 2.68% while the fund closed March 0.82% higher relative to February.
“Essentially, this performance reflects the average annualized coupon that currently can be calculated on our structures, approximately 11.6% annually,” said Sinnige (right).
During March, a large number of structures were redeemed early for a total notional of approximately €78m and all intended coupons have been paid throughout the month. These revenues, including a part of the available liquidity, have been reinvested in new structures – denominated in both euros and dollars – for a total amount of €84m.
The average buffer towards the protection barrier is more than 41% at the end of March, with the lowest buffer at 40%. In addition, all structures are currently paying their coupon.
The Market Stability Fund has €133m(US$141.6m) AuM. The fund was launched on 1 January 2018 and the minimum subscription is €100,000. Key investor information risk and reward profile: five out of seven.
The objective of this Swiss open-ended fund is to provide an efficient investment in a diversified portfolio of barrier reverse convertible (BRC) products linked exclusively to equity indices of the major developed countries.
As of 31 March 2024, the fund’s AuM reached CHF24.6m (US$27m), representing a 22% increase since the start of the year.
We’ve witnessed substantial fund inflows since the beginning of the year, with the momentum continuing into March - Vincent Bonnard
The outstanding performances of the fund in 2022 and 2023, coupled with the implementation of daily liquidity at the end of 2023, served as significant catalysts, according to Vincent Bonnard (below right), founding partner, Finanzlab.
“We’ve witnessed substantial fund inflows since the beginning of the year, with the momentum continuing into March,” said Bonnard, adding that since the fund’s inception in 2021 with CHF4.5m AuM, its growth has had no discernible impact on its performance.
“Incoming funds are reinvested proportionally in existing products, thereby maintaining the integrity of our portfolio structure.”
The majority of the fund’s products are listed on the Swiss stock exchange, and Finanzlab has agreed a tight spread of 0.5% max with the issuers, allowing for swift adjustments to its positions.
By the end of March, the fund was invested at 98.17% in 11 products from eight different issuers with only 1.83% in cash. The nearest barrier is at a distance of 41.66%, and the product in question, a BBVA Multi-BRC Autocallable on the ASX 200, Hang Seng, and Kospi 200, has a remaining maturity of 20 months. It is one of two products paying the highest coupon of seven percent, the other being CIBC’s issuer callable BRC linked to the Nikkei 225, S&P 500, and OMX Stockholm.
Despite a consistent decrease in market volatility, the fund managed to maintain an average coupon of 5.63% pa. in Swiss francs, showcasing its capacity to yield returns even during periods of market tranquillity.
However, according to Bonnard, geopolitical risks remain very present, accentuated by crucial elections in the United States and the renewal of the European Parliament and institutions.
“The potential resurgence of higher volatility levels could present opportunities for the creation of highly appealing products,” he said.
With no significant alterations, Bonnard’s expectations for the remainder of the year are in line with the current coupons the fund are receiving.
“Additionally, with barriers exceeding 40%, our portfolio maintains a robust positioning.
“Combined with its capacity to safeguard capital during market downturns, it presents an attractive investment option for those seeking defensive investments while remaining invested,” Bonnard said.
Finanzlab Multi Index Fund has CHF24.6m (US$27m) AuM. The fund was launched on 20 October 2021. There is no minimum subscription. Key investor information risk and reward profile: three out of seven.
Do you have a confidential story, tip, or comment you’d like to share? Write to info@structuredretailproducts.com.