The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
According to the findings, guaranteed accumulators on stocks with low volatility and low forward prices should ideally knock out 104%-105%, or roughly the same level as regular accumulators, and at about 108% for stocks with high volatility and high forward prices. In practice, private banks tend to sell guaranteed accumulators with much lower knock-outs.
Investors in share accumulators buy a certain amount of stock at a fixed price each day the market price stays below a pre-agreed knock-out level. Regular accumulators typically knock out when the stock hits 105% of the launch price, which is fine when markets are doing a crab walk but these trades can easily knock out within a few days when markets are see-sawing.
Bankers came up with the idea of guaranteed accumulators û typically offering a minimum one-month of accumulation û to keep the trades alive for longer. The cost of the guarantee is much lower knock-outs, typically at about 102%. Even so, investors realise there are no free lunches and seem more than happy with this arrangement û by some estimates guaranteed accumulators now account for more than half of all structured product sales at private banks.
But according to RBS, these low knock-outs are not set at the optimum levels and can end up being very expensive for investors. "The attraction of low knock-outs is obvious for private bankers, but are they best for clients?" asks Garry Frenklah, head of non-Japan Asia private banking sales, equity derivatives and FX/precious metal derivatives at RBS.
The boffins at RBS ran Monte Carlo simulations on two sample stocks to work out the optimum knock-out levels for guaranteed accumulators: Apple to represent a volatile stock and HSBC to represent a stable one.
The conclusion was the same for both stocks: "Strike levels are massively higher, particularly for guaranteed accumulators, when the knock-out is 102%-103%," says the research.
For HSBC, investors would be buying the stock at 92.13% of the initial price at the optimum 105% knock-out level, which is 4.26% cheaper than on a 102% knock-out. Investors would get Apple stock at 81.71% of the initial price, which is 9.94% lower than for a 102% knock-out.
As RBS concludes: "These low strikes are expensive."
Malaysia's Armed Forces Fund hires new CEO; Canada's Omers appoints Asia capital markets managing director; HSBC Asset Management creates alternatives unit, appoints CIO as its head; Bank of Singapore names global wealth head; Aware Super hires IFA head; Hong Kong names acting head for MPFA; Schroders adding to Asia ESG headcount; and more.
The French fund house becomes the world’s largest responsible asset manager to help asset owners implement sustainable investing, underlining its serious commitment to ESG.
The long-waited infrastructure Reits have finally arrived in China and, while experts see a slow start with hurdles ahead, they say it will later move to a 'big bang'.
AsianInvestor reveals the second half of the standout funds in our latest awards, including equity funds, the top Reit and the best smart beta vehicle.