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German Manager Structures Retail Equity Note

ADIG Investment, a German retail fund manager with EUR27.4 billion (USD24 billion) in assets under management, has structured a guaranteed equity-linked note using an equity put option as the guarantee. The five-year fund is referenced to a basket of global equity indices comprising equal amounts of the Standard & Poor's 500, Dow Jones Euro STOXX 50 and Topix, according to Thomas Heib, head of portfolio insurance in the financial engineering department in Frankfurt. The five-year notes are being targeted to retail investors. "A lot of investors suffered big losses in actively managed sector funds, so there is a trend to get back into the market and to not just bet on one horse but to have the whole market," he said. "The idea is to get investors back into the market" as the global economy appears poised to head higher.

The fund is currently being marketed to retail clients, mainly those of Commerzbank, which owns ADIG. Embedded in the structure is a put option investors will purchase from Commerzbank at the launch of the fund, which is slated for early next month, to ensure 100% capital guarantee. Heib said the participation rate will be the investment minus the cost of the option, which would give almost a 100% participation. However, he added that because the notes will be referenced to a quarterly composite of the indices the performance will not exactly mirror that of the indices of the five years. The fund is somewhat atypical in that it will achieve the guarantee using the put option. It has opted for this route as the appreciation of zero-coupon bonds is taxable income for retail investors.

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