Fund issuance gathers pace as European investors seek safety

Increasingly sophisticated investment strategies are being packaged into liquid funds as investors across Europe seek to avoid counterparty risk. Fund investment has also been prompted by the imminent implementation of tax laws in Germany which will put investments in funds on a level playing field with certificates (Structured Products, December 2008).

One fund launched in December by Unicredit subsidiary HypoVereinsbank offers investors in Germany, Austria and Luxembourg exposure to the 4Keys Macro Strategy Index. Issued by Structured Invest SA in Luxembourg, the strategy includes varying weightings of near-money market US dollar investments and investments in the S&P 500. The strategy is based on four key factors: the price/earnings ratio, the volatility of the S&P 500, the US inflation rate and the US overnight money rate.

Each month the performance of the components is assessed to identify any trends. The weightings will be readjusted for the next month depending on the results. Investors can earn a maximum of 150% of the gains in the S&P 500 if an upward trend is expected, and a maximum of 50% if the anticipated trend is negative. The fund is open-ended and incorporates protection against declines in the US dollar, with an extra level of investor security against counterparty risk as it is a mutual fund. The euro-denominated fund is readily negotiable on each observation date at the current listed price.

Developments have not been limited to equity underlyings, and are stretching across different asset classes. JP Morgan has launched a Ucits III-compliant, open-ended fund offering exposure to the Energy Light Total Return version of its proprietary Commodity Curve Index (CCI) for investors in Austria, France, Germany, Italy and the Netherlands, and plans to roll out across other countries at a later date.

The CCI, which was launched in November 2007, uses baskets of differing maturity futures for 35 commodities to provide investors with exposure to the entire futures curve, with component weighting calculated by open interest. The Energy Light Total Return version of the CCI caps the energy sector weighting at 33%, tailoring the index to the Ucits III requirements, which stipulate that fund underlyings must be sufficiently diversified to provide additional investor security.