Equity derivatives house of the year – Société Générale

Société Générale

Equipping itself with products that thrive on the non-collapse of the equity market and showing the desire to extend the range of structured products it can sell to insurance and other institutional investors, Société Générale (SG) has once more laid down a marker in equity derivatives-based structured products.

A banner year for equities that started at the turn of 2013 has put a spring in the step of almost all structured products houses. SG, with the 40% of its structured products business that is equity-linked, was well placed to benefit from the increase in flows. The jump in volumes was bolstered by the €2 billion raised in Europe from retail, private banking and institutional investors from the bank's ‘non-decrease' product, which offered a coupon of 5.5% per annum if the Euro Stoxx 50 is equal to or above 60% of its initial value.

Signs that the equity market was coming back to life sparked the revival of the Call on Max structure, which captures the highest level reached by an index, providing reassurance to investors about the timing of their plunge back into equity markets. Low interest rates made it almost impossible to provide a Call on Max and capital protection, both desired by retail investors. Weeks of simulations were followed in January 2013 by a capital-guaranteed trade for a German investor based on the low volatility and high dividend-paying Stoxx Global Select Dividend 100 Index, rather than the region's Euro Stoxx 50 benchmark. Twenty trades across Germany, Austria and France have raised more than €500 million, according to Marc El Asmar, global head of sales, cross-asset solutions at SG in London. Issuers following the trend have bumped volumes up to around €1.5 billion.

While noting that SG is as hamstrung as everyone else in France, where "structured products payoffs remain very limited by the regulator", one Paris-based distributor says SG still gives good pricing.

More simple-yet-effective breakthroughs came in the UK, where the bank has scooped this year's country award, with its UK Diversified Asset Index the leading innovation. As well as helping with asset allocation, the index includes a revamped volatility targeting mechanism that switches between the racier extremes of equities and commodities and relative safety, typically in cash. But a third basket, which is full of bonds, has been added to squeeze out more yield. As long as the bond basket is not correlated to the risky assets, it acts as the intermediary for the volatility target mechanism for a target audience that includes independent financial advisers.

"We are entering and developing when others are leaving," says Hubert Le Liepvre, global head of financial engineering at SG in London. "But we are also bringing our standards of product design [to the UK market]."

The first product was wrapped as a deposit, offering full protection at the end of a six-year term, regardless of index performance, while still delivering 100% exposure to the index. A second product was launched in July, enhanced by offering a minimum return of 2.5%.

Further advances throughout most countries in Europe were smart enough to make the bank worthy of this year's Best in Italy award, but there was also recognition of the commitment it has maintained to the structured products market in Spain, as well as those in Germany and northern Europe. Miguel del Campo, head of structured products at Inversis in Madrid, favours SG, alongside BBVA and Santander in Spain, and stresses the quality of the contact he has with the French bank. "It has very good human service," he says.

"The underlyings tend to be the top 10 European financials, companies from the Ibex, and the top 10 from the Euro Stoxx," says del Campo. "We have also been doing deals on huge US names, using correlation but trying not to put more volatility in the products. We usually do worst-of structures and have done single stocks when the market is very volatile. When volatility falls, we put in one or two more stocks. We also have to think about taking away the barriers."

Elsewhere, a subset of lower-volatility names was grouped in an algorithm for the iStoxx Low Variance Adjusted Beta Index, which generates alpha as the stocks outperform the index. "Exposure to the basket of 120 stocks is leveraged by a factor that is one divided by beta," says El Asmar. "The result is a correlation of one to the beta exposure of the underlying index... the strategy creates alpha." The French bank had raised €100 million on the strategy by the end of September.

When it comes to providing institutional investors with products that capitalise on risk premia or risk factors - one of the latest fashionable strategies in Europe - SG is already well prepared, with products based on the Muse Index created by its index team in partnership with S&P Dow Jones Indices, which aims to deliver stable performance with limited correlation to traditional asset classes, as well as low volatility.