Lookback

Bond and equity yields will remain extremely low this year as a result of demographic changes and a decline in savings, the Barclays Wealth Equity Gilt Study 2010 reports.

According to Tim Bond, head of asset allocation at Barclays Capital in London and co-author of the study, bond yields for 2010 will be as low as 1.5%, while equities will fare little better with yields of 7%. Demographic shifts are to blame – more acutely in the developed world but also in many developing countries. This means that the current abundance of savings is decreasing, which in turn will push up risk premia – especially for bonds – and therefore reduce yields.

“We are suggesting that investors should think about structurally underweighting government bonds and reducing benchmark weightings in the asset class as a long-run strategy,” says Bond.

Despite expressing caution in the past about the wisdom of investing in structured products, he now says they could be a good addition to a portfolio. “They can help to express specific views. Simple products where you get leveraged returns can be quite helpful in your portfolio. But there are other products which are structured to reflect views which may change over time.

They may look like a good idea at the time but their illiquidity goes against them for an investor if they change their mind,” he says.

Commodities saw significant declines at the beginning of the year after gaining nearly 20% in 2009, research from Fitzwilliam Asset Management shows.

There was a large sell-off of commodities in January, leading the Dow Jones UBS commodity index to fall by 7.28%, the largest one month fall since October 2008. This is probably due to concerns over China tightening its fiscal policy and the sovereign debt problems in Greece and Portugal. January movements are often thought to set a trend for the year ahead.

Zinc and lead both fell nearly 20%, while sugar was one of the few commodities to see gains, rising by more than 10%.  Movements in the price of oil show that risk appetite is a major driver of price, while implied volatility spiked in January even though overall volatility so far this year has been lower than in 2009.

Standard and Poor’s has also announced a decline in its commodity indexes during January. The GSCI Commodity Index fell 7.89%, while the GSCI Industrial Metals index was hardest hit, falling 8.9% after gaining 82.4% last year.

Just in case investors are a little confused by Crédit Agricole’s Casam exchange-traded fund (ETF) range distributed by the sales teams at Amundi and CA Chevreux, the products in the range have been rebranded as Amundi ETFs. The range will be managed by Amundi Investment Solutions, a subsidiary of the Amundi Group, and will still be distributed by the sales teams at Amundi and CA Chevreux. Have you got that?

The word on the street in Singapore is that advisers aren’t too happy after being poked with the sharp end of the Lehman Brothers bankruptcy stick. As of June 2009, two-thirds of Singaporean investors who lost money in structured products issued by the failed investment bank had been compensated, according to information published by the Prime Minister’s Office.

Some say the prompt for this immaculate behaviour is discussions held after banks and distributors got together with advisers, pointing out that it was often smarter and cheaper to compensate investors before the Monetary Authority of Singapore intervened. Furthermore, early settlements generally carry no requirement to admit liability, with those accepting the payouts generally making themselves ineligible for more compensation later.

Some advisers have suggested that the splitting of these informal payments 50:50 between the bank or distributor and the adviser is a rough deal given that their commission was only ever around 2% of the product. That said, these advisers appear to include one among their ranks who sold a product to a customer who signed a term sheet that she couldn’t read because she was blind.

Ever since Walker Crips burst onto the UK structured products scene as a distributor, there have been grins about the similarity of its name to a certain brand of snacks. Now individual financial advisers seem to have got in on the act – a source tells Structured Products that chortling IFAs fax the firm with requests for bags of cheese and onion. The staff at the unfortunately acronymed WC might find this all pretty tiresome, one would imagine, but, ever the good sports, they fulfil the request. Given that Walkers is one of the UK’s most established brands, perhaps they’re keen to encourage the association. A well-spent 40 pence in the marketing budget, then.