European issuers have been blessed with a year of opportunity. Macroeconomic tailwinds at the beginning of 2015 propelled structured products to new heights among both retail and institutional investors, while choppier trading conditions in the latter half of the year offered rich pickings for those canny enough to take advantage.
Equities revived their status as favoured underlyings following the European Central Bank's launch of quantitative easing (QE) in January. After years of moving sideways, continental indexes suddenly surged. The bull run whipped up interest in traditional yield-generating knock-out products such as leveraged certificates and autocallables.
QE additionally ushered in favourable conditions for the launch of hybrid products, with the inverse correlation between European equities and the euro/dollar exchange rate tempting investors into dual barrier structures referencing both stocks and forex. The tumbling euro also spurred a flood of assets into currency-hedged exchange-traded funds referencing European bourses.
This benign period came to an abrupt halt towards the end of the second quarter when the future of Greece in the eurozone was once again brought into question. The political tug-of-war played havoc with equity markets and spurred frantic action across equity derivatives desk as dealers sought to hedge the volatility exposure they had accrued from the bulk issuance of autocallables.
Benchmark indexes were dealt another blow in August as China's economy slowed and its stock market bubble burst. European blue chips briefly lost much of the ground they had gained since January, while volatility spiked to levels not seen since the global financial crisis. Enter proprietary indexes: a theme that ran through many of the pitches received for this year's awards. Issuers have been churning out algorithmic strategies and bespoke multi-asset baskets that promise to outperform the benchmark at a frantic pace.
Equities revived their status as favoured underlyings following the European Central Bank's launch of quantitative easing
The variety of indexes on offer is breathtaking. Some dealers have focused on building out traditional smart beta offerings, with high-dividend and low-volatility strategies being two particular favourites. Others have taken a thematic approach: designing indexes that track the equities of firms with strong environmental, social and corporate governance credentials, for example.
At the top of the range are highly engineered, multi-asset risk premia indexes. These isolate and extract the performance associated with popular carry and hedging strategies executed by alternative asset managers in a single, transparent package, giving sophisticated investors access to hedge-fund-like returns at a fraction of the cost. The SGI Risk Premia Index, developed by this year's overall winner, Societe Generale, is a flagship example.
Yield-hungry institutions have also flocked to structured products to augment the returns on their fixed-income portfolios. Dealers have revved up their bond repack platforms in response to demand from life insurers for enhanced coupons on their sovereign holdings, with Societe Generale and Crédit Agricole duking it out for supremacy in the continental arena. The latter's unique twist on the standard repack - incorporating a range accrual feature designed to take advantage of the spread between inflation and rates - won it this year's deal of the year award.
Congratulations to all our winners and the best of luck to all firms submitting entries for the 2016 awards - nominations open in August.
The profiles of our winners can be found below.
The week on Risk.net, July 7-13, 2018Receive this by email