Succumbing to World Cup fever

With football's World Cup in full swing it is unsurprising that the retail structured products market has been gearing up for the tournament with a series of football-orientated products. Robert Benson looks at what's on offer

Thanks to the football World Cup, European markets have seen the launch of several products linked directly to the performance of national football teams, with higher returns based on success on the pitch. In other cases it has been the success of the sponsors of the tournament or other companies that may benefit from the event, that have provided the upside potential.

As one would expect, the first products off the blocks appeared in the certificates and warrants markets. The ability to create products in this form both quickly and at a low cost gives these wrappers an advantage in creating unusual or short-term 'thematic' investments.

The German certificates market in particular, which is the most active market in terms of new issuance, has a predilection for theme or fashion-based investing, and is often the most innovative in coming up with new and interesting underlyings.

But it was a UK-listed product that appeared on StructuredRetailProducts.com first. Back in February, Société Générale launched a warrant giving exposure to a basket of nine companies likely to benefit financially from the tournament. The stocks were either likely to benefit from exposure to domestic German consumption, sportswear sales or official sponsorship or advertising campaigns based around the event.

All the companies chosen had a market cap of more than 3 billion (£2 billion ) and had outperformed in the run-up to European football events in the past. They were Accor, Continental, Nestlé, Adidas-Salomon, Danone, Beiersdorf, Heineken, Pinault-Printemps-Redoute and Puma.

The SG Football 2006 warrant was listed on the London Stock Exchange and the return was limited to twice the performance of the stocks with an in-built 30% stop loss.

Meanwhile, and at almost the same time, JP Morgan launched the first in a series of products linked specifically to the corporate sponsors of the event. The two-year capital guaranteed note followed the fortunes of eight of the 15 official partners - Coca-Cola, Anheuser-Busch, McDonald's, Deutsche Telekom, Fuji Photo Film, Adidas-Salomon, Continental and Yahoo - in relation to their nearest competitors.

The product paid an annual coupon provided the eight companies outperformed their non World Cup partner competitors - PepsiCo, Heineken, Yum! Brands, Telecom Italia, Eastman Kodak, Nike, Goodyear Tire and Google. The coupons were subject to a cap of 10% at the end of the first year and 20% at the end of the second year.

As one would expect as hosts of the event, the German market has been the focus of much of this World Cup-related activity.

German Himalaya

In March, the major German fund manager DWS used the rarely-seen Himalaya payoff to create the 'football-linked' fund "Performance Sieger 2014". This eight-year capital-protected fund was linked to the performance of a share basket comprising three shares from each of eight countries participating in the World Cup.

On a similar theme, the Spanish bank, Banco Sabadell began its World Cup campaign in April with the launch of a structured deposit directly linked to the performance of the individual teams competing in the event.

Using a similar formula to the Catalan bank's previous Depósito Campeón issued last November, which was linked to the performance of the 20 teams in the Spanish football league, this product was issued in 32 possible variants each one linked to one of the qualifying teams in the World Cup.

The deposit had a three-month duration and was on sale from April 25 until the start of the tournament on June 9. At maturity it guaranteed investors' their initial capital plus growth linked to the performance of their chosen team. If the team wins the cup, growth is 10% AER; if they are the runner-up, growth is 5®R; otherwise the product pays out 0.1% AER at maturity.

The previous Spanish League version of the product reached healthy estimated sales of 50 million earlier this year pointing to the potential for these kinds of products to appeal to investors imaginations.

Last month the pace of issuance appeared to step up with new products appearing in both Switzerland and Northern Ireland.

The former product was created by Nomura and offered to Swiss retail investors via Crédit Suisse. In fact the product aroused some controversy in the domestic market with a local lottery "expert" accusing the issuer of offering a product which is tantamount to gambling, forbidden by private institutions in Switzerland. An article in local paper Le Temps quoted the lawyer saying the product might contravene a 1924 ruling, although pointing out that the law has not been enforced for a long time.

Under the terms of these Equity Yield Notes a bonus coupon is paid that is linked to the performance of the Swiss national team in the World Cup tournament.

The note's guarantor and issuer, Nomura in London, told the paper that the authorities in Zurich, Bern, Basle and Geneva did not consider the note to be a lottery as the bonus is not linked to the number of investors but pays out evenly to all of them.

The structure of the notes is essentially a reverse convertible paying 13.5% over one year, linked to a basket of five World Cup sponsors comprising Deutsche Telekom, McDonalds, Philips Electronics, Procter & Gamble and Toshiba.

However in addition, there is the opportunity for a bonus of, respectively, 1%, 3%, 7% or 15%, depending on whether the Swiss football team gets into the quarter-finals, semi-finals, final or wins the tournament.

At maturity capital is returned provided none of the stocks in the basket breach a 25% downside barrier. Otherwise capital is reduced on a one- for-one basis with the worst performing stock as reference.

The notes were on offer until April 27, with a minimum investment of just SFr1,000 ($788).

Finally, earlier this month, the Royal Bank of Scotland's Ulster Bank subsidiary began offering the World Cup Guaranteed Deposit Account to investors in Northern Ireland.

This account uses the World Cup theme to market a structured product linked to a basket of six indices comprising FTSE 100 (20%), DJ Eurostoxx 50 (20%), Nikkei 225 (20%), S&P 500 (20%), ASX 200 (10%) and the iShare S&P Lat Am 40 index fund (10%).

The bank says that the basket represents some of the countries playing in the World Cup finals, some previous winners and some hosts.

Investors have the choice of three and six-year terms for the 50:50-style account, which offers at maturity, respectively, 11% and 30%, for the fixed-income part of the deposit. The other half of the capital is placed in a structured product offering, respectively, 50% or 60% of the rise in the basket.

As an added bonus, applicants for the account can enter a competition to win a luxury holiday for two to the country that wins the World Cup. However, if they prefer they can choose the country of the losing finalist!

All of these products highlight the innovation and creativity which is seen on a daily basis in the structured products markets. Some may feel that these products are simply frivolous attempts to attract naive investors into products with little rigorous investment rationale. On the other hand, as many hedge fund managers have demonstrated, the ability to capitalise on current investment themes can produce significant returns.

Either way, providing the opportunity for retail investors to take advantage of these more unusual investment opportunities is surely a sign of an innovative market. Whoever wins the tournament, at least for these investors, the result will have more than a purely emotional appeal.

Robert Benson is managing director of Arete Consulting, the owner of StructuredRetailProducts.com. He can be reached at

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