Robeco to offer exotic equity derivatives-based fund

Dutch asset manager Robeco plans to launch a guaranteed fund product that uses exotic equity derivatives.

The AEX Dutch stockmarket index will ultimately determine the overall payout from the fund, due for launch on October 28.

The fund will not be dynamically traded. Instead, the AEX index’s performance will be synthetically replicated via the purchase of an over-the-counter five-year ladder call option at the fund’s inception.

The option consists of a long European call combined with various knock-in put options - both long and short - Marcel Pronk, Rotterdam-based equity portfolio manager in the structured products group at Robeco, told RiskNews.

Units will be issued at €56.5 and investors’ guaranteed minimum return of €50 after five years will be achieved through purchase of a zero-coupon bond. The ladder option allows gains to be locked-in, if the AEX index reaches 10%, 20%, 30% and 40% above its initial level. Investors’ exposure will be equivalent to 80% of the option’s payoff.

Structured products with embedded path-dependent derivatives such as cliquet and ladder options have become popular in Europe this year, as they allow investors to lock in gains in volatile markets.

Dutch retail investors will be able to access the fund through the purchase of units with a five-year maturity.