Ireland has offered opportunities this year, and Ulster Bank has stood out as the bank that has capitalised best, securing an 80% retention rate when a national savings scheme matured. Ulster Bank captured the released cash with its Double Reward Bond and believes the simple yet rewarding structure was also the right product for first-time investors.
In April, the bulk of Ireland's Special Savings Incentive Account (SSIA) scheme matured, setting free an estimated EUR16 billion from the five-year accounts. The scheme was a government measure intended to encourage individuals to save regularly in an effort to cool the Irish economy, and more than a million savers eventually amassed a sum equivalent to 10% of the country's annual GDP. Since the SSIAs matured, a sizeable chunk of the money has been swallowed up by constant proportion portfolio insurance (CPPI) structures offered by major insurance companies.
Ulster Bank is owned by Royal Bank of Scotland, but it functions independently within the RBS Group, operating under both the Ulster Bank and First Active brands. The bank is Ireland's only AA-rated domestic bank and it develops and structures products for retail distribution as well as servicing third parties and intermediaries. Ulster Bank also operates a bespoke service to clients with a minimum of EUR500,000 to invest in a single transaction.
The Irish structured products market has come on leaps and bounds, moving from the traditional tracker bond-dominated sphere to a market comprising a variety of underlyings including managed fund of funds, commodity-linked capital-protected deposits and property products. However, 2007 was the first year in which a large number of first-time investors had a significant amount of money to invest. In winning much of this business, Ulster proved that product simplicity is essential.
David Kiely, head of treasury and investor solutions at Ulster Bank, says that the challenge was to retain most of the money that matured from the SSIAs, and as most of the money was held by first-time investors a simple, understandable, yet high-return product was needed. "We didn't want to issue a CPPI or another complicated product to first-time investors as these structures are for those with a bit more investment experience," he says. "It would be a tough challenge reinventing the basics and explaining the intricate parameters of a CPPI structure to these investors."
Ulster launched the Double Reward Bond in competition with deposit accounts offering high headline returns in a bid to capture maturing SSIA money. The five-year and six-month, 100% capital-guaranteed bond is structured as a split maturity deposit and offers a 14% return on 20% of the capital, with that capital repaid after year one. The remaining 80% offers a return of 70% of the average combined performance of any growth in a basket of four equally weighted indexes: the FTSE 100, the Eurostoxx 50, the Nikkei 225 and the ISEQ Overall Index.
The bond was also offered as the Global Combination Bond through First Active and allowed Ulster to retain a higher than expected level of its own maturing SSIA funds while attracting a portion of other banks' SSIA funds.
For innovation, Ulster conceived the Brightstar Bond, which is distributed through third-party clients and brokers. The six-year product, which uses Oppenheim Investment Managers to select stocks, is the first of its kind to offer an actively managed investment strategy within the confines of a capital-protected tracker bond which is unrestricted by any stock market index. Each month, Oppenheim chooses and uses its discretion to manage a basket of up to 12 stocks or cash from any global exchange.
There are two strategies available to the investor: the Protected Strategy, which is 100% capital-protected, and a Growth Strategy, which is 90% capital-protected. The protected strategy offers 72.5% participation and the growth strategy offers 107.5%. Kiely says that the Brightstar Bond moves away from traditional static underlying compositions and employs an active management solution around a single stock basket.
Further developments came in the form of Ulster Bank's UK Horizon Property Bond, which it distributed through its First Active Retail channel. The five-year 100% capital-guaranteed bond, which allows investors to gain exposure to the UK commercial property market, provides 80% participation in the FTSE Commercial Property Index.
Other noteworthy products from the Ulster stable include the Emerging Markets Bond, a first for Irish retail. The 100% capital-guaranteed product, which provides returns linked to four indexes in Brazil, Russia, India and China, offers a choice of two terms (three years and 11 months, and five years and 11 months) both at 100% participation which is individually capped at 30% and 60% respectively. Three series have been launched over the past year.
The week on Risk.net, December 2–8, 2017Receive this by email