Once upon a time, structured products were no more than simple equity-linked investments. Now, it seems, marketers are engaged in a constant battle to prove just how unique they are, actively promoting more unusual underlyings. And I'm not just talking about the usual suspects – commodities, hedge funds, property etc.
Last month, for example, Germany's Postbank launched a football-linked product. The bank, which sponsors the German national football team and next year's football World Cup, launched a three-month product, the Bonus Volltreffer, linked to Germany's performance in the Confederations Cup this month. Investors invest a minimum of €2,500 and receive a base rate of 1.5%. However, for every match the team wins, the rate is boosted by 50 basis points. Should a German player be the tournament's highest scorer, the return is enhanced by a further 100 basis points. This effectively caps the total return at 4%, which is well above the standard savings rate of around 1.5% in Germany.
But several distributors we spoke to think some banks are losing the plot as they strive for individuality. Gimmicks may help publicity, they say, but considering the precipice bond debacle, and allegations of mis-selling elsewhere, structured products providers should be more interested in being taken seriously.
But that isn't to say new underlyings should be completely dismissed. Exchanges and over-the-counter derivatives desk for the trading of carbon dioxide (CO2) emissions have existed for a while now, so it was only a matter of time before someone thought of building investments around this new and rapidly growing market. Dresdner Kleinwort Wasserstein (DrKW) has taken up the challenge and last month issued a CO2 certificate to track the market value of CO2 emission rights in Europe.
Is it simply another fad or will the CO2 certificates be enormously successful? It will be interesting to see if other institutions in Germany and elsewhere follow suit. After all, imitation is the sincerest form of flattery.
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The week on Risk.net, July 7-13, 2018Receive this by email