Vontobel on the right platform

Vontobel is expanding its presence in Europe by building a suite of products that aims to fill gaps in the market. Georg von Wattenwyl, the bank’s head of advisory and distribution of financial products, speaks to Sarah Nowakowska about Vontobel’s latest innovations

Vontobel Group's investment banking arm has built a strong presence in the Swiss market and has been working to expand in Germany, a country in which it listed 8,567 structured products in 2010. Focused on market making, developing financial products and bringing them to the market, the bank saw increased interest in yield enhancement and commodities in the first part of this year.

"A lot of portfolio managers as well as private clients started to diversify their portfolios through commodities, and the trend was to boost asset allocation into them," says Georg von Wattenwyl, Zurich-based head of advisory and distribution of financial products for Vontobel. "The first part of the year was good for structured products and there was a positive trend in terms of performance."

Gold and silver underlyings have remained popular with investors, says von Wattenwyl, though investors tend to prefer direct investments in these commodities. Interest in commodity indexes was also strong and prompted Vontobel to team up with JP Morgan to issue tracker certificates based on the US bank's Commodity Curve Indices, which consist of 36 individual commodities, to offer investors access to the full spectrum of commodities and natural resources.

"JP Morgan already had their index, with a track record and history, and we saw interest from clients to invest in commodities so we did a securitisation for that client segment on the index," says von Wattenwyl. "It combines the best of both worlds: Vontobel with its expertise as an issuer of certificates and JP Morgan's know-how in the commodities field as a global index provider."

By the second quarter of this year, though, interest began to shift towards unwinding risk and capital-protected structures, says von Wattenwyl. The cautious mood was driven by market frailties and volatility at the end of August and in the early weeks of September.

"Capital protection is often requested by clients but it has become harder to create these products with the market uncertainty," he says. "The past few weeks have been difficult for structured products because there is risk unwinding in the portfolios."

Reacting to investor demand, Vontobel recently structured a product that incorporates a reference bond to give clients the chance to choose their counterparty risk. Building on its Cosi (collateralised secured instruments) products that aim to minimise counterparty risk by giving clients the option to collateralise their investments, Vontobel's latest structure with reference bonds goes one step further to allow a choice of debtor to further minimise counterparty risk. Investors have a choice of more than 20 reference bonds, which include corporate and government bonds from various countries and sectors such as financial and industrial. Furthermore, the currencies do not have to match, which can expand the alternatives when creating the product. As such, the product's structure aims to enable investors to better manage the risk in their portfolio and benefit from higher potential yields by being able to choose the debtor.

"That's something investors like. They want to diversify the counterparty risk in their portfolio and may also want to enhance the yield by refusing a particular counterparty from a certain industrial company, for instance," says von Wattenwyl. "We're always thinking about the product side, not just in terms of the payout but also in terms of providing some assurance on issues such as counterparty risk and broadening the choice while reacting to themes to build a palette of products that fits with the needs of clients."

Among the bank's other offerings are a cliquet note on gold and a tracker certificate offering exposure to a China rail basket that includes eight of the biggest companies operating in railways industry and infrastructure in China and Hong Kong. The bank has also recently launched a tracker certificate on a basket of selected Russian stocks for investors interested in access to Russia's growth potential.

Vontobel is also expanding its Deritrade online distribution platform in Germany. First launched in Switzerland, Deritrade offers financial services providers the option to design and issue their own structured products, which they can tailor to clients' needs. With a choice of more than 600 underlyings, clients can choose the type of product they want to structure as well as its duration and coupon. The platform also allows users to issue products as collateralised certificates for their clients.

"[The platform] is one of the factors responsible for our good distribution set-up and it is something that is used especially in the flow product market," says von Wattenwyl. "It is already well implemented in the Swiss market and we are now starting to scale up the business and bring it to other markets, such as Germany."