Structured Products Europe Awards 2016
With investors steadily trading in smaller sizes and at much higher volumes over platforms, UBS impressed the award judges with its proactive attitude to tackling changing client demand, while maintaining its position as a market leader.
Of particular note was its offering on the Swiss Derivatives OTC Trading system (Dots). On the platform, which UBS helped to develop in 2012, the Swiss bank allows retail investors to buy 25,000 types of leveraged warrants, mini futures and turbo warrants on a wide variety of underlying assets.
"UBS offers investors a wide range of structured products, with a 38% market share. UBS is also at the forefront of innovation, helping [to] found the Swiss Dots platform, which offers a variety of features to help users trade more easily," says one judge.
Adrian Steinherr, managing director of derivatives distribution at UBS, says investors increasingly need fast and efficient ways to trade structured products. "We invested heavily in our existing platform of leveraged products, warrants and mini-futures, which is mainly for the retail market. In this environment, if you don't trade in and out of your positions, it's going to be difficult to generate any sort of yield or performance," he says.
UBS saw growing interest in risk premia strategies and expanded its offering to clients with new products, including the Systematic Trend and Risk Contribution strategy (Starc), while also seeing a solid uptake in existing strategies such as the Liquidity Premium Commodity Index (LPCI). The bank carefully targeted specific indexes to meet client needs.
"Instead of pitching every single risk premia strategy on our platform, we pitched a portfolio strategy approach to clients, which allows them to basically diversify across the risk premia spectrum and have a performance that is less aggressive from a Sharpe perspective, but taking advantage of correlation," says Steinherr.
This required UBS to run an extended analysis to identify a suitable set of strategies to support the client portfolio. The bank also provided strategic and technical support to clients; for instance, on rebalancing a portfolio.
Taking an active lead on investor education also went down well with the judges. "UBS is an information hub, distributing this information through events and daily, weekly and bi-monthly newsletters," says one.
Another judge agrees: "UBS's commitment to investor education is well documented and underpins the UBS proposition."
Beyond risk premia strategies, the bank has made good progress with relative value trades, partnering the chief investment officer's team at UBS Wealth Management, whose research is used to spot trade opportunities. These typically involve two underlyings, often going long on one and short on another, with leverage applied to one.
Once a trade opportunity is identified, UBS issues multiple tranches of structured products in different currencies, which replicate the trade. An appropriate stop-loss and take-profit trigger are set up, tied to the target return expectations, based on the asset manager's research. If the buy-side firm's research team withdraws an idea, it triggers an early redemption. Since the second quarter of 2016, when it was launched, 10 trade ideas have been provided with six structured instruments issued off the back of each one.
Being a safe pair of hands for clients has become increasingly important for UBS, and it has made progress in providing greater guidance around changes to investment strategies; for example, if a product hits a barrier and moves into a different risk category.
"If a barrier would be hit in the past, we would notify the client that the barrier has been hit and ask what they want to do," says Steinherr.
Now, UBS sends clients a template sheet explaining why a product has gone into a different risk category – such as from a conditionally capital-protected note to a capped delta-one product – and what this means in terms of value at risk.
"Our clients appreciate it, because they can use that information with their clients, be more concise about what the impact is of this change of risk category and proactively suggest how to proceed. For instance, whether to stay in the higher risk category or restructure the product, or just plainly sell the existing position," he says.
One judge highlights the importance of this approach: "Switzerland is a particular market where transparency and proactivity are especially valued. In these areas, UBS shows leadership in living up to expectations."
The week on Risk.net, December 2–8, 2017Receive this by email